Fed limits market disruption with Maiden Lane II sale
The sale of $7 billion in Maiden Lane II assets last week was surprisingly gentle to the nonagency market. The Federal Reserve Bank of New York announced the deal on Thursday. Credit Suisse (CS) outbid three other investment banks for the assets previously held by American International Group (AIG), mostly subprime mortgage bonds. Prices on nonagency mortgage-backed securities actually increased by two to three points after the announcement, according to Bank of American Merrill Lynch analysts. Maiden Lane II bonds were trading higher as well. On Friday, prices receded in the morning, but by midday demand and bids returned. "With so much focus around potential nonagency technicals, like European bank supply, broker/dealers pulling back in Q3 and Q4, and also (Maiden Lane II), the quick and quiet nature of the sale with little disruption to the market was viewed as a positive surprise by the market," BofAML analysts said. JPMorgan Chase (JPM) analysts said the AIG facility still poses a big concern for the nonagency market. As of November, there was a face value of roughly $20 billion in securities — of which $7 billion was sold to Credit Suisse. How much the Fed made or lost on the deal will be announced in April, but it's goal of unraveling these massive bailout facilities without harming the markets appears to have been achieved with the latest sale. "Bulk sales of distressed assets are a lingering concern weighing down any upward price action in the sector," Chase analysts said. "Of course, if such a sale is done, the lowered uncertainty would eventually be a relief for the market." Write to Jon Prior. Follow him on Twitter @JonAPrior.