Credit Suisse finds banks boosting agency MBS faster than expected
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.