Monday, December 14, 2009

Fed MBS Purchases from Household Sector Continues

The Fed released the latest Z.1 report last week for the period ending Third QTR 2009.

The snip below shows how the Fed has been acquiring over $800B of MBS this year while the Household Sector has now reduced it's ownership to just $68B from a level of over $800B a bit over one year ago.


Ryan Harris said...

Is it possible to short FNMA securities in anticipation of the end of Fed Purchases?

Matt Franko said...

I dont know of any ETF or equity type product that is derivative of FNMA MBS.

My guess is you would have to be an institutional investor for direct short exposure...

googleheim said...

What is MBS ?
Does this shift from what appears to be Household into the Fed mean that there is draining going on?

Is this a "profit" for the Fed so they can turn around and declare victory ?

That's really ironic :

The Fed pumps up the reserves which feed spending and then investment savings, then drain it for the purpose to make their balance sheets look "positive" to the detriment of all !

THIS is what Mike and Mosler show what happened when Clinton exited office -

Clinton drained the economy by balancing the budget for two reasons :

1. to claim that he balanced budget with such thoughtfulness

2. to leave a damaged economy to Bush, hence the recession

THEN Bush turns around and gives out free rebate checks to get the economy going.

This is pure witchcraft BS

Matt Franko said...

The MBS are "Mortgage Backed Securities" that generally refers to the debt securities issued by the GSEs (Government Sponsored Enterprises) such as Fannie Mae, Freddie Mac, Ginnie Mae, and the like. These GSEs buy loans from loan orignators (that comply with certain parameters of "quality"), then issue debt securities against the loans while guaranteeing timely payments to the holders of the MBS. See Wiki here.

This transfer of MBS ownership from the Household Sector to the Fed IMO is not the same as the Clinton surpluses as that was a transfer via taxes that is a true transfer from the non-govt to the govt sector (non-govt sector left with fewer assets). The Fed purchasing these MBS does not change the assets of the non-govt sector as the Fed has paid new reserve balances to the previous household owners of the MBS (households get "cash" instead of MBS ie no change).

While households were reducing their MBS holdings, they were increasing their ownership of Treasuries, by $500B over the same time. So MBS was down 800B and Treasuires up 500B. Ill try to do a followup post on the Treasury trends tonight.

It really just looks to me that the Feds intention witht he MBS purchases was to support the mortgage market over the last year.

The Fed might actually make money on them true, for instance now that they have $800B, the 4.0% coupon will pay them about $32B+ nominal over the next year, that ought to take care of any problems with the "Maiden Lanes"!.

I guess I feel its a shame that the household sector was not able to keep these MBS assets and it looks like they had to sell some of the MBS to raise cash to replace lost incomes needed to live.

Ryan Harris said...

The chart on the MBB barclays ishares shows a nice crest that corresponds well to when the Fed reduced the rate of weekly MBS purchases. I wonder if Pimco and the banks will be buying the same securities back from the Fed at a discount to the price they sold to the Fed when it begins to unwind the quantitative easing. hmm.

Matt Franko said...

Do you mean the top in MBB share price towards the end of November?

Ryan Harris said...

Yes, it looked about November when the chart started moving downward