On Incident Patterns Of Fed MBS Purchases And OpEx Expirations

Tyler Durden's picture

Jesse points out an interesting observation coming from our friends over at Contrary Investor, that MBS purchases by the Fed as reported in H.4.1 tend to cluster around OpEx dates. This can be seen graphically on the attached table (opex weeks highlighted):

The implication is clear: provide liquidity around the time most needed to "sustain" the market each month. Alas, we are willing to relieve the Fed of any allegations of wrongdoing, at least in this particular instance. As the attached chart from SIFMA demonstrates (see link), the bulk of MBS settlements simply occur during the middle two weeks of the month. What one can glean, is what particular class of MBS the Fed is focusing on: whether it is Freddie, Fannie or Ginnie, and either 15, 30 year or balloons. We suggest a granular analysis of the composition of monetized MBS would reveal a correlation between the appropriate settlement date and the relevant securities.

Of course, if this explanation is too simplistic, we would gladly entertain alternative perspectives.