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Credit Suisse analysts see record-low mortgage rates boosting MBS demand

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The record low interest rates should boost demand for mortgage-backed securities, as originators sell newly locked-in loans, according to Credit Suisse analysts. Mortgage rates continue to mine new depths and are now at record lows with a 30-year, fixed loan available for 4.27%. In this week's mortgage market focus report, analysts at the financial-services company said higher MBS demand may come from large institutional investors as money managers have "substantially covered their underweights, leaving banks as the primary buyers going forward." The market continues to price in a high probability of an auto-refi event, which should fade in coming weeks, Credit Suisse analysts Mukul Chhabra, Qumber Hassan and Mahesh Swaminathan said in the report. Although headline risk should diminish with Congress in recess and focusing on next month's elections, they said. The analysts also expect the Federal Reserve to purchase additional MBS if spreads widen sharply and this supports their expectations of a Fed backstop for MBS in the event of a rally. The analysts pointed to recent comments by Brian Sack, head of the markets group at the Federal Reserve Bank of New York, in which he said additional asset buying by the Fed will help economic growth as evidence of their expectations. In August, the Fed announced plans to reinvest proceeds from maturing MBS into Treasurys, but officials have said more MBS investment "might become desirable if conditions were to change." But exactly what the Fed will do at its next meeting Nov. 2-3 is anyone's guess. Write to Jason Philyaw.

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