Fannie Mae and Freddie Mac vs. Greece

From Citigroup analysts :

“Ultimately, the decision taken by the Fed was in line or even went beyond what was expected. The reinvestment of MBS debt by more than $20bn per month was good news for the real estate market, which still shows no clear signs of recovery. The IMF itself has already included in its financial stability report the possibility of going ahead with haircuts in the agencies’ debt market, a subject that is taboo but that appropriately reflects the need to provide liquidity. Finally, the Fed seemed to suggest the possibility of further action if necessary.”

Banco Santander explained the Fed’s latest move on a similar note:

“The Fed seeks to help the Greek US: the housing market. The new program to increase the duration of the $1.65tr portfolio in Treasuries will be carried out through sales until June 2012 of $400bn in Treasuries and three year-maturity T-bills to be reinvested in bonds at six to 30 years. Also, and this was not expected, the Fed decided to maintain the size of its MBS portfolio ($995bn) announcing that it will reinvest matured issues and pre-payments of MBS and agencies in agencies’ MBS (the rally in this $5tr market was immediate).

“Although three of the 13 voting members did not accept these measures, the fact is that the Fed avoided the most controversial one, i.e., increasing the size of the balance. The initial impact on the market (bull flattening) could be what Mr Bernanke was looking for: improvements in the 30-year bond by 20bp (its interest rate is already below 3%!) and only slight increases on the short-term issues.

“By improving the the long-term issues, the Fed seeks to help the US’s own Greece: its housing market (the 30-year term marks the reference rate in this country) via mortgage refinancing. Meanwhile, with last August’s explicit message about its desire to keep rates unchanged until mid-2013, the Fed probably thinks that the shorter tranch may stay relatively grounded despite the massive sale that will take place in the coming months of three-month and three-year-3 Treasuries.”

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