Fed Buying Agencies Hand Over Fist

Good news for PIMCO. The Fed purchased 4.468bb out of 6.875bb submitted, which was by far the largest amount purchased in this sector program-to-date. Previously the Fed had purchase programs from the 4yr to 10yr agencies, but given last week's purchase in the 30yr sector, the Fed Purchase programs are now divided differently (~ 3/10 to 3/11, ~3/11 to 3/13, ~3/13 to 7/15, ~7/15 to 7/32). Prior to last week, the Fed would purchase the ~3/13 to 6/18 sector. The previous largest size in what would have been this sector was 1.798bb back on 1/13/09 when the Fed purchased 3.5bb from 3/13 to 6/18. However, this is also the first purchase program where one of the recently large agency deals was available for purchase ($7BB FNMA 2.75 2/14) of which $2.149bb was purchased, putting its total notional at $4.851bb, more in line with historic agency deals. Subtracting this amount from the purchase program still yields $2.319bb purchased in this sector, which would still be the largest to date. Year to date the Fed has purchased 46.747bb agencies, just under half way. However as agencies cheapened up significantly over the past two weeks, the fact that the Fed is willing to step up the size of the program indicates that they will do what is necessary to keep relative cost of funding low for agencies going forward.

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