Fed Balance Sheet Shrinks as MBS Sales Slow

As the Federal Deposit Insurance Corp. prepared to announce a delay to the toxic loan-purchasing program of the Public-Private Investment Program, the Federal Reserve wrapped up a slow week of mortgage-backed securities (MBS) purchases. The Federal Reserve Bank of New York on Thursday reported gross weekly MBS purchases of $27.68bn in the week ending June 3 after $33.4bn the previous week. The Fed bought $4.95bn from mortgage giant Freddie Mac (FRE), $19.8bn from Fannie Mae (FNM) and $2.93bn from Ginnie Mae. The Fed’s weekly purchases favored 30-year MBS with 4.5% coupons: $9.1bn to settle in June, $8.55bn to settle in July and $2bn in August. Its weekly sales showed the continued week-on-week discrepancy, with no sales occurring in the 4.5% coupon range. The Fed sold $1bn in 30-year MBS at 5% coupons and $843m in 30-year MBS, all of which settles in July. Despite the Fed’s slow week of $1.84bn in MBS sales — down from last week’s $7.86bn — the Fed’s balance sheet contracted $8.21bn in the week ending June 3, for a total balance sheet of $2.07trn. The Fed’s balance sheet sits up $1.19trn from its year-ago value in the week ended June 4, 2008. The Fed reported Thursday in a balance sheet summary that it holds $427.61bn of MBS on its books this week, down $3.29bn from a week ago, suggesting some MBS sales might be catching up. Write to Diana Golobay. Disclosure: The author held no relevant investment positions when this story was published. Indirect holdings may exist via mutual fund investments.

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