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Originally Posted by Discuss Thrower
Missed the part where the Fed bought up $200MM in Fannie/Freddie/Gennie mortgages. That's concerning.
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Huh? No.
This action has been reasonably well-telegraphed in financial markets over the last few days. The Fed only has approval to buy securities issued by the federal government or the GSEs (“agencies”). Agency mortgage-backed securities (MBS) have dramatically underperformed recently. The Fed gets meaningfully more bang for its buck by buying MBS than Treasuries, so it makes a lot of sense that they would include them in this program.
I don’t want to get too wonky, but markets have been so broken recently. Easily more than I’ve seen at any point recently and the speed of deterioration was worse than 2008. There are some very basic things in markets that aren’t functioning properly - namely something called Treasury/futures basis trades. If those are so disjointed - and those are truly risk-free trades if you can hold them for a few months - then no other risky asset on the planet will ever end up trading well. So the Fed needs to fix those and that’s what they’re doing.
This doesn’t solve the situation we’re in as there’s no silver bullet. But the Fed is doing what it can and that counts for something. Though it’ll be overwhelmed by the storm that’s still coming. I think we’re in the middle of the 4th inning right now. But valuations in the equity market (vs 0% rates) are starting to become more long-term interesting.