Via Financial Times

The Federal Reserve accelerated its purchases of mortgage bonds on Friday after earlier interventions failed to calm the market for mortgage-backed securities or reverse a rise in home-loan rates for American consumers.

“It is not a pretty sight what is going on,” said Walter Schmidt, a managing director at FTN Financial. “Even with the Fed announcing all their mortgage purchases, MBS securities have struggled to find a bottom.”

The Fed’s New York branch bought $36bn in mortgage bonds on Friday, after purchasing more than $14bn on Thursday and $17bn between Monday and Wednesday.

The purchases were part of a plan, announced on Sunday, to buy at least $200bn in mortgage-backed securities over the next month. The Fed said that it “stands ready to conduct more purchase operations . . . to promote smooth market functioning”.

Despite the Fed intervention, mortgage-backed bonds remained under acute selling pressure. The difference in yields between mortgage-backed bonds and comparable Treasury securities topped 1.3 percentage points on Thursday, the highest seen since 2009. A month ago the difference was 0.44 percentage points. 

Difficulty in selling mortgage bonds has been reflected in the rates lenders offer customers. The national average rate for a 30-year mortgage rose to more than 4 per cent over the past week, a rate last seen in May, according to

Analysts attributed the disorder in the mortgage bond market to a rush for cash among investors. 

“There is a lot of need to raise cash, and MBS are one of the only products that someone — namely the Fed — is willing to buy,” said Vipul Jain of Wells Fargo Securities. “The Fed is obviously showing clear intent to stabilise the MBS market — the question is whether they need to upsize from $200bn.” 

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Mr Jain said there was also significant mortgage bond selling from mortgage investment companies, which buy mortgage-backed bonds, using borrowed money to increase returns.

The effect of the uneasy bond market on mortgage rates has been compounded by the operational difficulties of lenders as they process a wave of mortgage refinancings that initially followed Fed interest rate cuts.

“The rates that are being quoted to borrowers are still reflective of the traffic jam to get on to the refinancing highway,” said Greg McBride, the chief financial analyst at “Lenders have been overwhelmed by the influx of applications and are now quoting rates that are more of a deterrent than an incentive to apply.”

Several market participants said they believed the Fed actions could work, noting that mortgage bonds had begun to tighten on Friday afternoon.

“We just have to give [the Fed] a little bit of time — everybody wants instant effects but the mortgage market isn’t even stable yet,” said Jim Tabacchi, chief executive of South Street Securities, a broker. “Everybody just wants to get through the day and go home, so they can fight again another day.”