Fed’s MBS Sales Rise as Balance Sheet Shrinks

The Federal Reserve Bank of New York purchased another $59.57bn in gross agency mortgage-backed securities (MBS) this week from government-sponsored entities Freddie Mac ()Fannie Mae (FNM) and Ginnie Mae after last week’s $41.45bn gross purchases, according to a late-Thursday announcement. The Fed purchased, net of $36.42bn in coupon sales, $23.14bn in agency MBS in the week ending April 22, a decline from last week’s $26.2bn in net purchases. Sales for the week ending April 29 more than doubled from last week’s $15.25bn. The Fed bought a gross $18.1bn from Freddie’s books, $40.96bn from Fannie and $500m off Ginnie’s books this week. The Fed’s purchases this week favored MBS with 30-year maturities and 5.5% coupons, at a $31bn price tag from all agencies. These purchases will hit the Fed’s balance book in May. Meanwhile, the Fed also sold a comparable $30.55bn of 30-year 5.5% coupons, but these sales won’t settle until June. See a detailed table of the current week’s purchases and sales. Since the Fed began listing the settlement months of the transactions — when the purchases and sales should affect the Fed’s balance sheet — weeks ago, a noticeable discrepancy arose on a weekly basis in terms of the settlement months of coupons bought and sold. For example, of the Fed’s hot ticket purchase item last week –30-year 4.5s — a whopping $16.45bn is set to hit the Fed’s balance sheet in June, while the Fed’s only weekly sales of the same coupon — a relatively small $500m — affects the Fed’s April balance sheet. This week’s 30-year 5.5s, however, show a bit of stabilization in terms of the volume of purchases balancing the volume of sales. The $31bn in purchases and $30.55bn in sales may settle month apart, but the Fed is still selling about as much as it had purchased, keeping its month-over-month activity balanced in terms of asset and liability traffic on the Fed’s balance sheet. The Fed began listing sales weeks into the program and settlement months only recently, however, indicating a long history of MBS purchases that outweigh sales. The effect shows on the Fed’s balance sheet, which sits about 140% above its value at the same time last year, according to a balance sheet summary released Thursday. The Fed’s assets shrank by $81.54bn the week ending April 29, bringing the Fed’s consolidated balance sheet to a value of $2.08trn for the week, from $2.17trn the week before. The balance sheet is still up $1.22trn from the year-ago week ended April 30, 2008. Write to Diana Golobay at [email protected]. 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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