Maiden Lane crowding the mortgage bond market
The Federal Reserve's ongoing initiative to sell private-label residential mortgage-backed securities acquired from American International Group (AIG) in the wake of the financial crisis continues to pressure bond prices, upsetting traders. The assets, which are part of the Fed's Maiden Lane II portfolio, are being sold through investment manager, BlackRock Solutions, a unit of BlackRock Inc. (BLK). Last week, reports indicated that the Federal Reserve Bank of New York had sold $1.9 billion of MBS from Maiden Lane. Initially, $3.8 billion was up for bid. A Monday report from Interactive Data concluded that Maiden Lane II listings represented 40% of all bid activity for nonagency adjustable-rate CMOs and subprime RMBS in May. With Maiden Lane activity putting additional pricing pressures on the broader structured products market, analysts with Interactive Data found May activity is "reinforcing the possibility that the Maiden Lane II lists are making a negative impact on market pricing." "In the face of this supply, execution levels for adjustable-rate bonds appeared to weaken as the month progressed," analysts said. "Prices were generally weaker by approximately one-half point across various categories of adjustable-rate products, based on Interactive Data’s observations of bids, offers and actual trades." The negative impact of the Maiden Lane II sales is not a new trend, analysts raised concerns about the pressures AIG sales are placing on structured finance products a few months ago. Write to Kerri Panchuk.