Lawler: Update on the GSEs: Mortgage Investment Portfolios Down Again, Agency MBS Holdings Little Changed in August; Interest Rate Risk Measures Mixed
From housing economist Tom Lawler: Fannie Mae and Freddie Mac recently released their monthly volume summaries for August, and these reports showed that their combined mortgage investment portfolios (MIPs) fell slightly last month, which their combined holdings of Agency MBS increased slightly. In the first four months of this year the GSEs’ combined MIPs increased by $45.0 billion and their combined holdings of Agency MBS rose by $50.5 billion, but in the last four months their combined MIPs and Agency MBS holdings have declined by $5.6 billion and $11.6 billion, respectively. The $39.0 billion year-to-date increase in the GSEs’ Agency MBS holdings is a far cry from the $200 billion of GSE MBS purchases implied by President Trump’s January 8 th post, and the decline in the GSEs’ Agency MBS holdings over the last few months surprised quite a few market analysts. MBS/Treasury spreads narrowed sharply to historically very tight levels following the President’s January post on MBS purchases. That narrowing proved to be relatively short-lived, and MBS/Treasury spreads are now well above where they were prior to the President’s post. In terms of their interest-rate risk measures, Fannie Mae’s market-value sensitivity to a 50 bp upward shock in interest rates declined slightly from a very high level from July to August, while Freddie Mac’s market-value sensitivity to such a rate shock rose again from an even higher level. Given what has happened to MBS relative to Treasuries as well as interest rates overall, the GSEs’ decision not to accelerate MBS purchases by as much as the President suggested has been a “good” one, while the GSEs’ decision to allow its market-value exposure to a rise in interest rates increase has been a “bad” one. Below are some summary stats from both GSE’s monthly volume summaries. CalculatedRisk Newsletter is a reader-supported publication. To receive new posts and support my work, consider becoming a free or paid subscriber. Thanks for reading CalculatedRisk Newsletter! This post is public so feel free to share it. Share