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http://www.bloomberg.com/news/2011-1...ram-shift.html
By Jody Shenn and Caroline Salas Gage - Dec 5, 2011 7:04 PM ET
By Jody Shenn and Caroline Salas Gage - Dec 5, 2011 7:04 PM ET
The Federal Reserve Bank of New York entered into paired contracts to buy and sell mortgage securities for the first time since it began reinvesting in the debt in October, in a move that may reduce funding costs.
The so-called dollar roll transactions may be aimed at lowering financing costs for mortgage-bond investors as banks trim their balance sheets before year-end, said two people familiar with the matter, who declined to be identified because the Fed’s trading hasn’t been publicly announced. The central bank is purchasing bonds for December settlement and agreeing to sell the same amount of similar debt in January, they said.
“I applaud the Fed,” Scott Simon, mortgage-bond head at Newport Beach, California-based Pacific Investment Management Co., which runs the world’s largest debt fund, said in an e- mail. “This both makes them money and helps the MBS market. There wasn’t enough year-end balance sheet.”
The central bank began reinvesting proceeds from its holdings of $1.4 trillion in housing debt into government-backed mortgage bonds to help support the real-estate market and homeowner refinancing, shifting from additional purchases of Treasuries. On Nov. 30, the Fed joined with global central banks to cut emergency dollar funding costs for European lenders as the region’s sovereign debt crisis roils markets.
The New York Fed says on its website that it “may use dollar roll transactions if needed to facilitate settlement” of its purchases. Jonathan Freed, a spokesman, declined to comment. The Fed posts details on its mortgage bond buying each Thursday.
cont. http://www.bloomberg.com/news/2011-1...ram-shift.html
The so-called dollar roll transactions may be aimed at lowering financing costs for mortgage-bond investors as banks trim their balance sheets before year-end, said two people familiar with the matter, who declined to be identified because the Fed’s trading hasn’t been publicly announced. The central bank is purchasing bonds for December settlement and agreeing to sell the same amount of similar debt in January, they said.
“I applaud the Fed,” Scott Simon, mortgage-bond head at Newport Beach, California-based Pacific Investment Management Co., which runs the world’s largest debt fund, said in an e- mail. “This both makes them money and helps the MBS market. There wasn’t enough year-end balance sheet.”
The central bank began reinvesting proceeds from its holdings of $1.4 trillion in housing debt into government-backed mortgage bonds to help support the real-estate market and homeowner refinancing, shifting from additional purchases of Treasuries. On Nov. 30, the Fed joined with global central banks to cut emergency dollar funding costs for European lenders as the region’s sovereign debt crisis roils markets.
The New York Fed says on its website that it “may use dollar roll transactions if needed to facilitate settlement” of its purchases. Jonathan Freed, a spokesman, declined to comment. The Fed posts details on its mortgage bond buying each Thursday.