Archive for November, 2010
Banks continue to boost holdings of agency mortgage-backed securities at a rate faster than Credit Suisse analysts projected.
In this week's mortgage market focus report, the financial-services company said banks added $55 billion of agency MBS so far during the fourth quarter pushing the year-to-date total to $115 billion.
"Our mantra that banks will be the main buyers of MBS is playing out to a more aggressive timeline than we had anticipated," analysts Mukul Chhabra, Qumber Hassan and Mahesh Swaminathan said in the report. "Nevertheless, we expect this trend to continue based on a low yield and slow loan growth outlook."
Credit Suisse continues to recommend investors stay long on MBS vs. swaps based on what it called "attractive risk/reward." Analysts said the MBS basis to five-year swaps is nearing the widest level in two years.
"MBS investors are likely to remain on the sidelines if rates continue to sell off," Credit Suisse analysts said. "However, we believe that the recent sell-off in rates was likely driven by market positioning heading into QE2 and rates should grind lower once these effects wane."
Write to Jason Philyaw.
The head of the Federal Reserve Bank of Boston yesterday countered growing criticism of the Fed’s purchase of $600 billion in long-term Treasury bonds, saying it’s needed to combat deflation and high unemployment.
Republican congressional leaders and other critics are blasting the Fed’s move as nothing more than printing money to buy up bonds, effectively underwriting government spending and risking inflation.
But Eric Rosengren, president of the Fed’s bank in Boston, insisted that the Federal Reserve has a dual role of both maintaining the stability of prices and keeping unemployment as low as possible.
The Federal Reserve, faced with more criticism than its leaders anticipated, stepped up its counteroffensive on Wednesday as leading Republican lawmakers continued to attack its plan to spur the recovery.
The Fed chairman, Ben S. Bernanke, met with 11 members of the Senate banking committee to explain the decision to inject $600 billion into the banking system, a resumption of the Fed’s bond-buying program aimed at lowering long-term interest rates.
In a speech on Wednesday, Eric S. Rosengren, president of the Federal Reserve Bank of Boston and one of the biggest advocates of the Fed’s decision, said the plan could reduce the unemployment rate by a little less than half a percentage point by the end of 2012. “This would translate into more than 700,000 additional jobs that we would not have had in the absence of this monetary policy action,” he said.
Clearly, if there is going to be an economic recovery, securitization will have to play a major role. But one or two bond issues, even large ones like JPMorgan’s, or another a few weeks earlier by Citigroup and Goldman Sachs Group for $788 million of commercial mortgages, do not make a trend. The securitization markets are still way below the levels that were reached in the heady days of 2007, when $246 billion in commercial-mortgage securitizations were issued. This year only about $9 billion of new securities and refinancings were issued through September 30, according to figures compiled by Thompson Reuters.
It’s a similar story elsewhere in the asset-backed world: Auto loan securitization is a bright spot with $38.5 billion so far this year, but that’s still below the $82 billion issued in 2006. Securitized bonds backed by credit card receivables are down to just $5.1 billion, compared with $99 billion in 2007. But the real disappointment is private-sector-originated residential-mortgage-backed securities, known in the trade as private-label RMBSs. There has been just one new private-label RMBS issue, worth only $238 million, in the two years since the market imploded. That compares with $789 billion of new issuance in 2006 alone.
