A Barclays Capital analyst expects banks to continue supporting the agency mortgage basis this year after adding nearly $87 billion of agency MBS during the second half of 2010. Matthew Seltzer, who tracks the securities from the firm’s New York office, said “valuations remain attractive and other lending is still reasonably difficult,” which points to banks adding more agency MBS. Most of the additions in the latter part of 2010 came in the form of Fannie Mae and Freddie Mac pass-throughs and agency collateralized mortgage obligations. Seltzer said banks mostly reduced Ginnie Mae pass-through holdings in the fourth quarter for an aggregate loss of $1.2 billion. Barclays Capital said the top 50 banks added $38.4 billion of agency MBS in the fourth quarter, which was on top of $48.5 billion in the third quarter. Meanwhile, the banks lowered non-agency MBS holdings by $9 billion, or 5.1%, during the final quarter of 2010. Treasuries holdings also decreased, as did the level of agency debt held at the banks. Seltzer said the data from the National Information Center aren’t as comprehensive as the coming quarterly banking profile from the Federal Deposit Insurance Corp. but still a good gauge of bank assets and liabilities. Write to Jason Philyaw.

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