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Bond Market Calm Is Threatened by Fed’s $1.75 Trillion MBS Shift

Tuesday, March 21, 2017 14:00
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wallstreetexaminer.com / by Anthony Sanders via  Confounded Interest / 

Will there be a seismic shift in bond and agency MBS volatility as The Fed gradually raises rates and starts to unwind their massive balance sheet?

(Bloomberg) -By Liz Capo McCormick, Matt Scully and Edward Bolingbroke- As far as bond buyers go, the Federal Reserve is pretty laid-back.

Even as the central bank amassed trillions of dollars of debt to prop up the economy following the financial crisis, it didn’t hedge its holdings or worry about gains and losses that might keep ordinary investors up at night. This extreme buy-and-hold stance has had an incredible calming effect on the bond market. Volatility has plummeted to lows rarely seen in recent memory.

But all that is now poised to change. With interest rates on the rise, analysts say the Fed could start shrinking its unprecedented $1.75 trillion position in mortgage-backed securities by year-end. That’s likely to leave more in the hands in private investors and result in increased hedging activity, a practice that has historically exacerbated swings in the Treasury market.

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The post Bond Market Calm Is Threatened by Fed’s $1.75 Trillion MBS Shift appeared first on Silver For The People.



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