By Isobel Kennedy
NEW YORK (MNI) – The New York Federal Reserve reported late Friday
afternoon that it purchased $7.25 billion agency mortgage-backed
securities in the week ended November 23.
The largest purchases in the latest week were in Fannie Mae and
Freddie Mac 30-year “to-be-announced” securities with 4.00% coupons for
December delivery. Those buys totalled $2.550 billion.
The next largest purchases consisted of $2.050 billion Fannie Maes
and Freddie Macs with 3.500% percent coupons for December delivery.
The NY Fed also bought $1.400 billion Fannie Mae and Freddie Mac
with a 3.500% coupon for January delivery.
Market sources noted that the $7.25 billion in purchases last week
were a step up from the average of $5.50 billion per week made over the
previous month.
That is because the Fed’s mortgage portfolio is feeling the effects
of higher prepayments as mortgage rates remain very low.
On November 13, the NY Fed said it expected to buy about $28
billion in agency mortgage-backed securities from November 14 to
December 12. That is higher than the $22 billion it said it expected to
buy in the October 14 to November 10 period and that reflects the higher
prepayment levels.
On December 13, the NY Fed will again estimate its prepayment
levels based on the factor reports that are released from Fannie Mae and
Freddie Mac on the fourth business day of December.
Lower coupon agency MBS are seeing good buying Monday morning from
real money accounts based in the United States and market sources
attributed it to the fact that Treasury 10-year notes backed up to the
recent high yield of 2.07% due to hopes for some solution to the
European debt crisis.
In addition, American shoppers were out in droves on the day after
Thanksgiving this year and that bodes very well for this year’s holiday
shopping season.
Hopes on the European front and surging store sales caused global
equities to rebound Monday and U.S. Treasury prices to fall.
Mortgage-backed securities trade on a spread to Treasuries basis
and as 10-year Treasury yields rose to 2.07%, buying came into the
mortgage market.
“Lower (MBS) dollar prices are like a soothing bath,” one mortgage
trader said.
Market sources also uniformly agree that if the Federal Reserve is
forced to do another quantitative easing program next year, it will
probably include another agency mortgage-backed securities component.
The current MBS purchases are being made under the program the Open
Market Committee announced on September 21. The purchases are being made
with the proceeds the New York Fed receives from prepayments to its
mortgage portfolio which totals about $870 billion currently.
Any interest payments or proceeds from maturing debentures in its
agency portfolio are also reinvested into MBS securities.
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