The Department of the Treasury announced plans to unload more than $100 billion in agency mortgage-backed securities at a tidy profit. Markets quickly responded, pushing rates higher.
At the peak of the U.S. financial crisis in October 2008, the Treasury Department began buying up agency-guaranteed MBS to help restore market stability. The move was authorized under the Housing and Economic Recovery Act of 2008.
The investments continued until December 2009 and had a market value of around $142 billion as of March 15.
On Monday, the Treasury said it would begin an orderly wind down of its MBS portfolio.
When the investments started in 2008, State Street Global Advisors was retained to acquire, manage and dispose of the assets. State Street will manage the wind down of the portfolio.
“The market for agency-guaranteed MBS has notably improved since the time Treasury purchased these securities in 2008 and 2009,” the statement said. “Based on current market prices, Treasury expects to make a profit for taxpayers on this investment.”
Each month, the Treasury Department plans to sell as much as $10 billion in MBS, though market conditions could impact sales.
News of the Treasury’s move was followed by a more than 200-point rise in the Dow Jones Industrial Average. It also had the 10-year Treasury Note — which impacts mortgage rates — trading down 20/32 in early trading, according to WSJ.com. The yield, which moves in the opposite direction of the price, was 3.339 percent.
While the Treasury’s disclosure of its planned sales might be impacting today’s market activity, a far bigger impact can be expected when the Federal Reserve begins to unwind its $1.25 trillion in agency MBS investments. The Fed is currently re-investing principal MBS payments in U.S. Treasury bonds — leaving a gradual decline in its portfolio.
