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Credit Suisse Sees $224bn Available For Fed To Reinvest in 2011

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Earlier this week, the Fed said it plans to reinvest proceeds from maturing mortgage-backed securities into Treasurys, and Credit Suisse expects $97bn to be available for reinvestment during the rest of the year. In its mortgage market focus report issued today, the financial-services company said the Fed has accumulated about $90bn of proceeds so far in 2010 and another $224bn should be available for reinvestment next year, as well. Analysts said their projections assume a 4.5% interest rate and are 25% higher than prior estimates. The range of possible proceeds would expand to between $160bn and $281bn if the rate rises to 4.75% or drops to 4.25%, according to Credit Suisse. On Tuesday, the Federal Open Market Committee once again maintained the ZIRP and announced the reinvestment plans in an attempt to limit contraction of its balance sheet. Credit Suisse expected the Fed's decision to put the proceeds into Treasurys rather than MBS "given record low mortgage rates, spreads and existing MBS fails." Analysts said the decision also "should push back the timing on Agency MBS sales, limiting the net MBS supply to be absorbed by private investors." Credit Suisse expects the Fed's announcement to remain "neutral to the MBS basis, as an increase in supply will be partly offset by the lack of Fed MBS sales and incremental demand for spreads given lower Treasury yields." Write to Jason Philyaw.

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