Fed Mortgage Bond Program, March 12-18 (week 11)
This week was the eleventh week of a mortgage bond purchase program by the Federal Reserve—here’s week 10. Beginning on March 12 and ending on March 18, the Fed bought $28.2b of mortgage bonds—below is a table breaking down the amounts for each coupon and maturity across the three agencies that issue mortgages: Fannie Mae, Freddie Mac, and Ginnie Mae. The largest investment was into 4.5% 30yr fixed Fannie and Freddie bonds, which represent outstanding loans in the 4.75%-5.125% range. The next largest investment was into 5.5% and 6% coupons which represent outstanding loans in the 6%-6.5% range.
As we’ve been discussing, a two-tier strategy has emerged over the time that the Fed has been buying mortgage bonds. Tier one of the strategy is to have their investment last as long as possible. Tier two of the strategy is to drive rates down and hold them down. But as of last Wednesday, tier one of the strategy is less of a question because they increased their budget by 150% and their timeline by 100%—original budget and timeline was to buy $500b in MBS by June. Now they plan to buy $1.25 trillion by December.
The press speculation is that Fed stimulus will help drive rates even lower than they are now. This isn’t as likely because tier two of the strategy has already gotten rates to historical lows and the Fed is up against private selling pressure. The longstanding money manager strategy is to buy agency MBS and then sell before the Fed does. So as we move through the year, the increased budget is ostensibly enough to offset private selling but probably not enough to bring rates down drastically from current levels.
What Mortgage Bond Buying Means for Rates And Consumers
See last week’s report for a detailed description of the strategies and what it means for consumers. Also you can see this story for another consumer-friendly description of what’s going on. And now that the new budget is in place, we will continue to monitor this weekly like we have been because there’s really nothing different other than a larger budget which gives the Fed a larger timeline.
Tally Of Mortgage Bonds Bought By Fed
The Fed, according to their own reporting, has bought $245.45b of mortgage bonds, which is 19.64% of their allotted $1.25t target by December.
Since the Fed is now showing sales as well as purchases in their reports, here’s a more technical description of gross versus net MBS sales that Reuters did two weeks ago.
