Suppresssionomics: The Fed Helped Tighten Agency MBS Current Coupon Spreads After The Housing Bubble

Jon Banking, Economy, Fiscal Policies, Government, Market Commentary, Real Estate

This is a syndicated repost courtesy of Confounded Interest. To view original, click here. Reposted with permission.
The Federal Reserve’s purchases of agency mortgage-backed securities pushed the Fannie Mae 30-year current-coupon spread over 10-year Treasury notes to its tightest level ever in 2012. The resulting effect of the Fed’s massive holdings persists: From the end of 1999 to March 2016 the average spread on the Fannie Mae 30-year current coupon was 111 basis points. Over the housing bubble years (2000-2008), the average spread was 135 basis points. Since The Fed’s intervention, the spread has fallen to 0.798 basis points.
With a possible increase in The Fed’s purchase of agency MBS (given the recent Atlanta Fed forecast of Q1 GDP of 0.1%), we could see further current coupon suppression over the 10 year Treasury yield.

This post was published at Wall Street Examiner by Anthony B. Sanders ‘ April 10, 2016.