Fed to Buy $1T-Plus of GSE MBS, Debt, More

The yield on the benchmark 10-year Treasury plummeted to 2.5% Wednesday afternoon after the Federal Reserve said it would give a $1 trillion-plus shot in the arm to the housing and mortgage markets by purchasing $750 billion of agency MBS, $100 billion of Fannie/Freddie debt as well as $300 billion of longer-term Treasury securities. "The Fed is now trying to influence not just the spread between private interest rates and Treasuries (through its mortgage-backed securities purchases, for example), but to pull down the entire spectrum of interest rates by driving down the rate on benchmark Treasuries," said IHS Global Insight chief U.S. economist Nigel Gault in a report. The agency MBS market shortly after 4 p.m. Thursday was "more than keeping up with swaps but not keeping up with Treasuries," Art Frank, director and head of agency mortgage-backed securities research at Deutsche Bank Securities, told MortgageWire. He said agency MBS rallied on the news without any huge volume. Ensuing investor activity was fairly modest with some servicer convexity-related buying but not to any large extent, Mr. Frank said.