Initial MBS Euphoria Wears Off a Bit

The Federal Reserve's plan to purchase up to $500 billion of housing-related government-sponsored enterprises' mortgage-backed securities as well as up to $100 billion of their debt could mean a refinancing boom if the initial positive MBS market reaction to the move lasts. The immediate reaction to the move largely was "euphoria" in the MBS market, said Art Frank, director and head of MBS research at Deutsche Bank. "If this holds it's going to kick off a refi wave of some size," Mr. Frank said. But as of late Tuesday morning the market had "given up a little bit" of its initial outperformance based on the reaction of the benchmark Fannie Mae current coupon, he said. Premiums were not performing quite as well due to anticipation of a possible refi wave, Mr. Frank added. Overall, the MBS market as of Tuesday morning had done "very well" in reaction to the Fed's decision to join Fannie Mae, Freddie Mac and the Treasury in buying MBS in hopes of spurring purchases and refinancing that would be helpful to the larger economy, according to Ken Hackel, managing director at RBS Greenwich Capital.