Fed Continues to Slow MBS Purchases

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The Federal Reserve today reported on their weekly purchases of agency mortgage-backed securities (MBS). In the four trading days between October 8 and October 14, the Federal Reserve purchased a total of $21.42 billion agency MBS. In those four days the Federal Reserve sold a total of $5.32 billion agency MBS with almost all sales being Fannie Mae 5.5 MBS coupons. After sales, the Fed's weekly net purchases were $16.1 billion.

The goal of the Federal Reserve's agency MBS program is to provide support to mortgage and housing markets and to foster improved conditions in financial markets more generally. Only fixed-rate agency MBS securities guaranteed by Fannie Mae, Freddie Mac and Ginnie Mae are eligible assets for the program. The program includes, but is not limited to, 30-year, 20-year and 15-year securities of these issuers.

Since the inception of the program the Federal Reserve has spent $941.03 billion, or 75.28% of the allocated $1.25 trillion which is scheduled to run out in March 2010.

Of the net $16.10 billion purchases made in the week ending October 15:

  • $1.00 billion was used to buy 30 year 4.0 MBS coupons.  6 percent of total weekly purchases
  • $4.20 billion was used to buy 30 year 4.5 MBS coupons.  26 percent of total weekly purchases
  • $5.80 billion was used to buy 30 year 5.0 MBS coupons.  36 percent of total weekly purchases
  • $3.40 billion was used to buy 30 year 5.5 MBS coupons.  21 percent of total weekly purchases
  • $300 million was used to buy 30 year 6.5 MBS coupons.  2 percent of total weekly purchases
  • $1.00 billion was used to buy 15 year 4.0 MBS coupons.  6 percent of total weekly purchases
  • $400 million was used to buy 15 year 4.5 MBS coupons.  3 percent of total weekly purchases

Of the $16.1 billion net total. 52% of the mortgage-backs purchased were Fannie Mae coupons while 45% were Freddie Mac, and 3% Ginnie Mae.

The Fed's daily purchase average was $4.02 billion per day, an increase from last week's daily average of $4.00 billion per day (a function of the four day trading week).

This is the fifth consecutive week the Fed has reduced MBS purchases. A slowdown of daily purchases is expected as the Fed begins to exit from the agency MBS purchase program. Up to this point the gradual withdrawal has not affected the performance of MBS coupons against benchmarks. This is a function of a slowdown in new production from originators.

Here is a chart illustrating the evolution of the Federal Reserve's Agency MBS Purchase Program. Notice the trend of less and less weekly purchases