Print Baby Print
By James Dailey, Investment Outlook blogger / PennLive / October 28, 2011
... Over the past couple of months, the Fed has now thrown out a number of bread crumbs that a major policy move was in the offing. First, there was Operation Twist, which by itself was a curious announcement given Ben Bernanke's luke warm assessment of that kind of policy in the past. It seems logical to us that Operation Twist was a foundation laid for additional policy action.
Next up, Bill Gross of PIMCO fame began to comment about the potential for further asset buying by the Fed (i.e. QEIII) targeting mortgage backed securities. ... The "click" moment last week happened for us after I received an email forwarding a WSJ article chronicling a Fed governor's speech on the subject (thanks again Rich). A major intervention in the mortgage market would "accomplish" a number of vital goals as laid out by the Fed and also address the political reality faced by incumbent politicians:
... Operation Twist was performed to drive long term rates down in order to help facilitate mortgage refinancing and make any refinancing even more potent as far as freeing up cash. ... The benefits from lower rates has been muted due to the lack of a transmission mechanism - namely that many cannot refinance. A major mortgage centered program could legitimately defrost some of the credit system, which could go a long way in putting a charge into monetary velocity. ...
Mortgage rates have, perhaps, responded to Operation Twist:
Fixed mortgage rates near historic lows
By Associated Press / November 4, 2011
WASHINGTON — The average rate on the 30-year fixed mortgage fell to 4 percent this week, nearly matching the all-time low hit just one month ago.
Freddie Mac said Thursday the rate on the 30-year loan dropped from 4.10 percent last week. Four weeks ago, it dropped to 3.94 percent — the lowest rate ever, according to the National Bureau of Economic Research.
Are the mortgage backed securities (MBS) purchases underway too now?
US Fed bought MBS to cover canceled deals with MF
Reuters / November 3, 2011
The U.S. Federal Reserve bought $950 million in mortgage-backed securities from other firms to replaced canceled transactions with bankrupt futures broker MF Global , the New York Fed said on Thursday.
The replacement purchases were part of $5.5 billion in net buying of mortgage-backed securities in the week ended Nov. 2. ...
NY Fed: Buys $6.45B Agency MBS; Cancels Trades With MF Global
Market News International / November 3, 2011
The New York Federal Reserve Thursday said it bought $6.55 billion agency mortgage-backed securities this week under the program the Open Market Committee announced September 21.
The largest purchases this week were in Fannie Mae and Freddie Mac 30-year "to-be-announced" securities with 4% coupons for December delivery. Those buys totalled $3.15 billion.
The next largest purchases consisted of $1.6 billion Fannie Maes and Freddie Macs with 3.5% percent coupons for January delivery. ...
