Fed taking bids on another $878.6 million of Maiden Lane assets
The Federal Reserve continues offering subprime mortgage bonds it acquired from American International Group (AIG), creating a situation some traders believe is hurting bond prices. The central bank is now accepting bids on $878.6 million of mortgage bonds from the Maiden Lane II Portfolio, which was created to hold assets acquired from AIG in 2008. Bidding began Tuesday and winners will be announced Thursday. The Fed accepts bid through its investment manager, BlackRock Solutions, a unit of BlackRock Inc. (BLK). The offering includes 29 bonds from the Maiden Lane II portfolio, which is currently pressuring bond prices, according to MBS traders familiar with the mater. Kenneth Lee, director of fixed-income portfolio analysis for Interactive Data, said the sale of assets from Maiden Lane II was not having "a freezing effect" on other issuers bringing non-agency RMBS to market. However, Lee said the unprecedented sales have created some trailing effects. "The sale took focus away from otherwise routine 'bid wanted in competition' list activity, as the MLII list took center stage," he said. "Market softness was detected toward the last week of the month in several sub-sectors, most notably in subprime (first lien home equity) RMBS. Although it is difficult to attribute the market sell-off to any one factor, one possibility is supply fatigue. Another possibility was a general softening in the market for RMBS paper. In this sense, the MLII sale served as an indicator for market direction." Lee said other bonds offered after the Maiden Lane listing didn't "receive the same level of strength as MLII bonds." Originally, AIG expressed interest in buying its assets back, but the Fed nixed the idea, saying it wanted to open up the bidding to obtain the best deal for taxpayers. Write to: Kerri Panchuk.