(Updates throughout.)
By Prabha Natarajan Of DOW JONES NEWSWIRES NEW YORK -(Dow Jones)- The Federal Reserve bought $10.213 billion of mortgage bonds guaranteed by Fannie Mae (FNM), Freddie Mac (FRE), and Ginnie Mae in the first three days of its new program to support the housing market, the central bank reported Thursday.
The Fed has pledged to purchase $500 billion, or possibly more, of these bonds in the first half of the year, in an effort to push down mortgage rates. This is only one of many programs the central bank is juggling as it expands its role in the financial markets.
The purchases in the first days of the program put the Fed on track to buy the half-trillion dollars worth of mortgages in six months when the program is scheduled to expire.
There was little reaction Thursday afternoon in the mortgage bond market to the data, where the Fed's daily intervention had already caused risk premiums, or spreads, to narrow. They tightened another two basis points on Thursday, bringing to total narrowing to 38 basis points for the week.
"People already knew the Fed was buying heavily," said Art Frank, a mortgage strategist at Deutsche Bank.
Risk premiums on these bonds have narrowed as much 100 basis points from their highs in November before the Fed announced its purchasing program.
As a result, mortgage rates that homeowners pay also have fallen from above 6% levels in November to 5.01% as of Thursday, according to Freddie Mac.
Additionally, the extent of Fed purchases is expected to push other investors, who had shied away from this market, to return.
Most of the central bank's purchases were of mortgage bonds guaranteed by Freddie. It bought $6.899 billion of Freddie bonds, $2.864 billion of Fannie bonds, and $450 million of Ginnie Mae securities.
Much of its buying was concentrated in the 30-year 4.5% and 5% coupons, according to Fed data.
The central bank, over the three days, bought $3.45 billion of 4.5% coupon and $3 billion of the 5% coupon.
"They are targeting the current coupon," said Walt Schmidt, a mortgage strategist with FTN Financial.
The current coupon, or that closest to par, is the mortgage bond with a primary mortgage rate of 4% on its 30-year loans. Typically, lenders add additional charges and fees to this primary rate to come up with the final mortgage rate homeowners pay.
The limited supply of these 4% coupons forced the Federal Reserve to expand its purchases to the next two higher coupons, of which there is plenty of supply, Schmidt said.
-By Prabha Natarajan, Dow Jones Newswires; 201-938-5071; prabha.natarajan@dowjones.com
(Anusha Shrivastava contributed to this report.)
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Publié le 08 janvier 2009 Copyright © 2009 Dowjones