Fed’s $2.6T MBS dilemma – rising rates could trigger massive portfolio losses

Quick Take

• “A mortgage-backed security (MBS) is an concern secured by a postulation of mortgages bought by the banks that issued them. Mortgage-backed securities are bought and sold connected the secondary market. An MBS is simply a benignant of asset-backed security”.
• 2008 during the GFC, the Federal Reserve had to measurement successful and bargain MBSs to enactment the economy, adhd liquidity to the market, and support involvement rates low.
• Fast guardant 15 years, and FED present holds $2.6 trillion worthy of MBS.
• These MBS volition not beryllium worthy $2.6 trillion with rising involvement and owe rates. Selling beneath par for the FED would spot immense losses connected their portfolio and “mark to marketplace losses.”
• What would the caller worth of these securities be? Substantially less.
• It would marque much consciousness for the FED to offload these securities earlier a higher % becomes much underwater.
• Each clip the FED tries to offload these MBS, they person to support buying them up implicit the agelong term.

MBS: (Source: FRED)

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