Fed Mortgage Bond Program, May 14-20 (week 20)

This week was the twentieth week of a mortgage bond purchase program by the Federal Reserve—here’s week 19. Beginning on May 14 and ending on May 20, the Fed bought $24.68b net 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. After focusing on 4% and 4.5% coupons last week, which represent outstanding loans in 4.25%-4.675% and 4.75%-5.125% ranges respectively, they focused more closely on 4.5% coupons this week. This investment is important to hold rates down. Rates were generally favorable during this week’s Fed buying window with no major sell-offs to push rates higher.

As we discuss in our weekly reports, the Fed has been using their mortgage bond buying to elevate mortgage bond prices which pushes rates down. But it depends on which coupons they buy week to week, how much private selling pressure their is working against Fed buying, and how much supply is coming onto the market. This week’s rate stability shows that there wasn’t much private selling pressure and private markets were generally in a buy or hold mode just as the Fed was.

Going forward into the coming months, further significant rate drops as a result of Fed mortgage bond buying isn’t as likely because rates have already dropped to historical lows and the Fed will continue to face more private selling pressure as they move deeper into their $1.25t budget (more on this below). The longstanding money manager strategy is to buy agency MBS ahead of Fed buying and sell at a profit before the Fed does. So as we move through the year, the Fed’s mortgage bond budget is might be 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 this report for a detailed description of the Fed program and what it means for consumers. We will continue to monitor this weekly like we have been—to try to help consumers make decisions but the gist is: rates are at all-time lows, so if you can get the right price on a property purchase you’ll get a record low rate to go with it. And if you’re looking to refi, this year is your time, with the safe bet being before the Fall.

Tally Of Mortgage Bonds Bought By Fed
The Fed, according to their own reporting, has bought $490.22b net of mortgage bonds, which is 39.22% of their allotted $1.25t target by December.