Interest Rate Roundup

Tuesday, November 25, 2008

Fed announces new ABS, MBS programs

The Federal Reserve is extending its tentacles even further into the credit markets with two new programs this morning. One is targeted at the Asset Backed Securities (ABS) market and one is targeted at the Mortgage Backed Securities (MBS) arena. Here are some details:

First, we now have the TALF -- the Term Asset-Backed Securities Loan Facility. This one is targeted at ABS backed by student loans, auto loans, credit card loans and Small Business Administration loans. The New York Fed will lend as much as $200 billion to holders of AAA-rated ABS, with the Treasury Department providing $20 billion in credit protection via the TARP. The program is open to "all U.S. persons that own eligible collateral" -- is other words, not just Fed-regulated banks, though borrowers will have to use a primary dealer as their agent.

Second, the Fed is now going to join the Treasury Department in manipulating pricing in the MBS market in an attempt to lower consumer loan rates. The Fed said it will buy up to $100 billion of Fannie Mae, Freddie Mac, and Federal Home Loan Bank debt starting next week. It will also start purchasing as much as $500 billion in agency-backed MBS, through asset managers, sometime between now and year-end.

The immediate reaction: A rally in stock futures and a 23 basis point drop in the spread between Freddie Mac's 10-year debt and U.S. Treasuries of similar maturity. Yields on current coupon Fannie Mae 30-year MBS are dropping by about 30 basis points. In other words, "wholesale" mortgage rates are coming down. U.S. long bond futures are also rising -- up 1 8/32 in price at last check.

Personally, I want to know when the Fed is going to get more creative with all of these acronyms. TAF, TSLF, PDCF, MMIFF, CPFF -- they all lack originality. Couldn't we name a program the "Mortgage Interest Lowering Facility?" Or how about the "Stabilize Housing Interest Trust?"


  • a real, genuine lol. thanks.

    Care to shed any insight into why you think the 10yr etc rally on this? From this untrained eye, I just see gads of more supply coming which I would think would be bearish.

    By Anonymous Anonymous, at November 25, 2008 at 10:13 AM  

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