The Federal Reserve paid the federal government a record $88.9 billion in 2012, compared to $75.4 billion last year, reaping gains from Treasury bonds and mortgage-backed securities purchased to spur economic growth and drive interest rates lower.

The Fed net income was $91 billion, of which it sent $88.9 billion to the Treasury. The largest portion of the Fed’s revenue was derived primarily from $80.5 billion in interest paid on MBS and Treasurys that were purchased, according to Fed preliminary unaudited results.

Click on the chart to view the Fed’s yearly distributions.


The Fed purchased $20.5 billion of agency MBS over the past week and sold $9.4 billion of conventional 30-year 3.5 January to February roll, according to Barclays (BCS).

Since September, Fed net purchase of agency MBS was highest for issuer Fannie Mae, purchasing 152,500, or 53%.

Click on the chart to view issuer purchases.


Fed purchase of agency MBS by product was highest for conventional 30-year loans, purchasing 171,200, or 60%.

Click on the chart to purchases by maturity and coupon.

The Fed has been buying Treasury bonds and mortgage bonds since the financial crisis in an effort to reduce unemployment and gain economic recovery momentum following the crisis.

In December, the Federal Open Market Committee decided to continue to purchase additional agency MBS at a pace of $40 billion per month. The Committee also decided to purchase long-term Treasury securities at a pace of $45 billion per month.

“Taken together, these actions should maintain downward pressure on longer-term interest rates, support mortgage markets, and help to make broader financial conditions more accommodative,” the Fed said.

Following the Committee’s decision, Fed chairman Ben Bernanke stated the decline in mortgage-back securitization yield will not stop investors from returning to the markets when the Fed agrees to sell its holdings.

Mortgage rates and MBS yield spread is widening. Bernanke pointed out that while he doesn’t expect 100% pass through of MBS, over time a great majority of MBS yields will get passed through with the benefit seen by retail customers via continued favorable mortgage rates. 

Earlier this month, the FOMC minutes revealed that Fed policy makers are likely to slow monthly purchases of $85 billion in mortgage bonds and Treasurys sometime in 2013.

Simply put, the FOMC meeting minutes provided a timeline, indicating the order in which the Fed will wind down its open-ended third round of quantitative easing, which so far is making the government big profits.

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