Federal Reserve Becoming an MBS Hog?

Is the Federal Reserve gobbling up so much MBS in the secondary market that it’s creating a shortage?

The issue was raised Friday morning when UBS Financial Services chief Art Cashin mentioned on CNBC that there is talk the Fed cannot “find enough mortgage paper” to buy.

One MBS investor, requesting anonymity, said over the past few weeks the market has been talking about “how much of this paper the Fed owns.” He added, “In certain coupons there’s not much to buy,” especially in the 4% range.

The central bank is buying $40 billion to $60 billion a month in agency MBS, intentionally keeping interest rates low, this investor said.

Early in the fall the Fed said it would expand its holdings of long-term securities with open-ended purchases of $40 billion of mortgage bonds as part of a third round of quantitative easing.