Fed Starting to Lend Mortgage Agency Debt

Starting today, the Federal Reserve will make available to lend the debt it owns that was issued by mortgage agencies Fannie Mae (FNM), Freddie Mae (FRE) and the Federal Home Loan Bank system owns. The Fed’s agency securities are held in its Open Market Account, which has been comprised of the various debt issues the Fed has acquired as part of monetary policy activity.

The Fed has long lent out its holdings primarily for the purpose of ensuring the smooth functioning of the repo market (where primary dealers go to finance their trading positions by borrowing U.S. Treasuries overnight from the U.S. central bank’s holdings). This borrowing or lending program allows dealers to use these borrowed securities to raise short-term cash and/or settle trades.

In recent months, the Fed’s holdings of agency debt, bought as a part of its effort to lower borrowing costs in the housing sector in past quarters, have experienced significant appreciation.
Read the full analyst report on “FNM”
Read the full analyst report on “FRE”
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