The Federal Reserve Bank of New York conducted $6bn of mortgage-backed security (MBS) coupon swaps in the week ending July 7. It's part of a move to settle billions of dollars in agency MBS purchases. The Fed concluded its $1.25trn in purchases of agency MBS at the end of March. The swaps operations are not expected to exceed the unsettled amount of $9.2bn in Fannie Mae 30-year 5.5% coupon securities (Fannie 5.5s). Last week, the Fed sold $6bn of Fannie 5.5s. It then swapped those coupons for $4bn of Fannie 4.5s and $2bn of Freddie Mac 4.5s, according to regularly updated data. A coupon swap, as the Fed explained in a June policy statement, is a standard market transaction involving an agreement to purchase one agency MBS and a simultaneous agreement to sell a different agency MBS. The rationale behind pursuing coupon swaps is a "relatively short supply" of Fannie Mae 5.5s, according to June securitization research by Barclays Capital mortgage strategist Nichlas Strand. While Federal Reserve Board members have debated the means and time frame of winding down the Fed's agency MBS holdings, Fed Governor Elizabeth Duke said in a June 30th speech that MBS sales are unlikely until the Fed begins to raise rates from all-time lows. Even then, Duke said, the MBS selling process will require clear communication on how and when holdings will be sold. Write to Diana Golobay.