© BM Fed’s $ 1 trillion mortgage buying spree with no end in sight (Bloomberg) – The Federal Reserve has collected $ 1 trillion in mortgage bonds since March, a record buying pace, as US central bank is trying to mitigate Covid-19 recession on US homeowners. The Fed bought about $ 300 billion in bonds in March and April, and since then it has been buying about $ 100 billion per month. It now owns nearly a third of the mortgage-backed bonds in the United States. The purchase of the securities pushed mortgage rates down, with the 30-year average rate falling to 2.91% last week from 3.3% in early February. This drop has allowed homeowners to refinance their mortgages, which is like giving them a raise by reducing their monthly loan payments. It also helped consumers buy homes. But the Fed’s efforts inflate its balance sheet, and the central bank with so many home loans in the United States, it has unusually high power over mortgage rate setting. The Fed’s buying efforts got off to a good start on March 15, when it announced it was cutting its benchmark interest rate to 0% and would buy “at least” $ 200 billion in asset-backed securities. mortgages. On March 23, the central bank signaled its willingness to buy virtually unlimited amounts of debt, changing “at least” in its statement to “in the amounts needed”. At the end of that month, mortgage purchases totaled $ 291 billion, an average of $ 23.4 billion per day. It was in a month when only $ 162 billion in mortgage bonds were issued. Morgan Stanley analysts (NYSE ???? pointed out at the end of March that purchases were proceeding at eight times the pace seen in previous episodes of Fed buying under programs known as easing. quantitative, a pace that has since slowed. The current monthly rate of about $ 100 billion translates to about $ 40 billion net, after taking into account borrowers’ principal repayments on mortgage bonds already on the bank’s balance sheet. Fed. The Fed’s latest statement promised to continue buying “at least at the current rate.” If the central bank does, by the end of the year it will have bought about $ 1.4 trillion in ‘mortgage bonds – and added about $ 900 billion net to its holdings. Fueling growth These purchases will fuel growth in the mortgage-backed securities market, which funds the majority of the estimated 11 bil lions of dollars of outstanding home loans in the United States. In December, the consensus was that the net supply would be around $ 265 billion this year – a level that would fit perfectly with the annual average of $ 270 billion over the past half-decade. Last month, analysts at JPMorgan Chase (NYSE ???? & Co. raised their forecast to $ 390 billion, which would be the highest since 2009. JPMorgan analysts say the increased size of the market is driving the pace of sustainable Fed purchase. Between September 2012 and October 2014, during a quantitative easing program called QE3, the Fed held a record 34% of the market. Just before this last round, the principal repayments of its holdings in Mortgage bonds had reduced this percentage to 21%, but it is now back to 30%. If the Fed maintains its current buying pace, it will again own 34% of the mortgage universe by the end of the year Supporting the economy Fed buying activity has allowed risk premiums, or spreads, on mortgage bonds to remain little changed from late last year. also helped to improve the yields of bonds hyp Creditors for the year, compared to those of the first few months of 2020. The Bloomberg Barclays Index (LON ???? US MBS rebounded -0.34% at Friday’s one-year close to -date low of -2 , 87% on March 19. Buying so many home loans is the right thing the central bank must do to support the economy, Kevin Jackson, managing director of Wells Fargo’s mortgage trading office (NYSE ???? & Co., said in an interview with Bloomberg. ” We had a pandemic and you needed a force to enter the market and stabilize things, ”Jackson said. © 2020 Bloomberg LP
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