Fed’s MBS Purchases Ease

As US Treasury Department secretary Timothy Geithner testified this week that he saw green shoots sprouting across the economy as credit once again begins to flow, the green pouring out of the central bank into MBS markets continued to slow. The Federal Reserve‘s weekly agency mortgage-backed securities (MBS) purchases slowed in the week ending May 20 as its balance sheet topped $2.17trn with efforts to lift mortgage-related assets from banks’ balance sheets and stimulate continued lending. The Fed bought a gross $25.52bn MBS from mortgage giants Freddie Mac (FRE) and Fannie Mae (FNM), as well as from Ginnie Mae, down from $35.6bn purchased last week. The weekly purchases favored MBS with 30-year maturations at 4.5% coupons, with $3.7bn to settle in June, $5.85bn to settle in July and $5.5bn to settle in August. Of the Fed’s $15.05bn in purchases of these MBS, only $95m of similar MBS is slated for sale this week, to settle in May. The Fed also sold $250m of 30-year MBS at 5% coupons, $200m of 30-year MBS at 6% coupons and $300m of 15-year MBS with coupons between 4% and 4.5% for a total of $845m in weekly sales. See a detailed chart of the Fed’s weekly purchases and sales. The discrepancy in these purchases and sales has made an impact on the Fed’s balance sheet in recent months. The balance sheet rose $48.64bn the same week ending May 20 to a total $2.17trn, according to a weekly summary released Thursday. The balance sheet shows the Fed added $430.49bn to its balance sheet from MBS alone since the same time last year. It also added $74.55bn in agency debt securities since last year, in an attempt to free up capital at the agencies and encourage more mortgage activity at lenders that package and sell loans to the agencies. Write to Diana Golobay. Disclosure: The author held no relevant investment positions when this story was published. Indirect holdings may exist via mutual fund investments.