The Treasury Department said Monday morning it will begin the "orderly wind down" of its remaining $142 billion agency mortgage-backed securities portfolio from emergency programs put in place in 2008 and 2009.
The Treasury said it would sell $10 billion per month to wind down the portfolio, starting this month. The portfolio stems from acquisitions under the Housing and Economic Recovery Act of 2008. Selling the portfolio is subject to market conditions, and the Treasury said evidence of adverse market conditions could lead to a change in the sales frequency of the program.
Paydowns on the portfolio have been running about $3 billion to $5 billion per month.
Barclays researchers say they do not expect the Fed to follow suit with sales of its MBS and the Treasury said its move would not impact current administration policy regarding the wind down of the agency guaranteed MBS held in the government-sponsored enterprises’ portfolios, which are already being reduced at a pace of no less than 10% per year.
But the Barclays researchers believe the Treasury move itself could be significant in terms of its effect on the supply of agency MBS in the market. As a result the firm has reduced its “overweight” recommendation for the agency MBS basis to “neutral.” It noted that most of the Treasury’s holdings in this portfolio are concentrated on 4% and 5.5% coupons.
The Treasury expects taxpayers to profit from the sales based on recent market prices relative to what it bought the securities for originally.
