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.

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Anonymous's picture

Bingo. Been thinking of it,and even wrote about it here in one post,and now the proof. The first ralley was the week before opex week in Mar. And then many times I noticed certain high beta stocks were pumped up in opex week(not that last one though,as I questioned here why they were let go). The concept is realy simple. When the market was volatile,and options had a huge premium,the catalyst for the Nov and Jan meltdown was I believe Chicago. Many times I noticed they manage to bring the s&p right to the highest open interest strike. And hence I guess GS requested that the FED make liquidity available to them around the opex week so they can counter any plans of shorting the market by the CBOT gang. And I believe when Blanjfein "apologized",he was apologizing to his buddys whom he probably shafted during market ramp up after Mar.

Dirtt's picture

Don't you guys sleep?  AWESOME

Anonymous's picture

totally missed that this was already posted.. TD you are a machine.


swordfish's picture


No no no. You dont get it. MBS is purchased or there is a MBS settlement, when there is a  settlement day for big notes,bonds auction.

More over, what would be other point? FED is just try to transfer money from MBS to UST notes, bonds. Thats it. I would tell you more - check the amount that is maturing, and check the amount of all auction of big notes bonds, then subsctract one from each other. So you get - what new money is needed. Then check MBS settlement amount - what you get ?? DING DING DING THE SAME AMOUNT:)

Please check Lee Adler wall street examiner for more details




swordfish's picture

From Lee Adler:

MBS settlements coincide with big Treasury settlements. The fact that they also happen to be options expirations weeks is purely coincidental. There are bi-weekly large Treasury note and bond settlements. The options always expire the same week as the second of those. The options expire at the same time as the 3 and 10 year notes and 30 year bonds each month.

There's a reason for the timing of the MBS, but it has absolutely nothing to do with options.

ghostfaceinvestah's picture

Agreed, they actually buy MBS all day, every day.  No doubt at all that all the MBS money has poured tremendous liquidity into the markets, but think of it as a continuous firehouse.

Pondmaster's picture

I like Jesse's question that begs an answer. What happens in March ? 

dumbquant's picture

Hey TD, like the spreadsheet.  Looks familiar :)

Anonymous's picture

Good morning, you stupid bulls. Is this the beginning of the primary wave 3? I pray that it is. I also pray that you stupid pigs will get slaughtered in the down-turn.

Anonymous's picture

Did anyone see that Barry Ritholz was attacking the legendary market observer Charles Biderman again? What a dumb-fuck. He also believes that the criminal organization, the Federal Reserve, should stay in business. What a moron.

bugs_'s picture

Internal/employees front running options before

pressing the big button.

glenlloyd's picture

Bove was on NBR last night blathering about the problems the adminstration is going to bring about with the new Volcker-Glass-Steagal rules. I turned it off, NBR has just become a ridiculous mouthpiece.

Jesse's picture


Here is my original take on this data below from my blog, and an addendum I added today after some readers wrote in as a I had asked.

I doubted the correlation was intentional because its too 'fat.'  There are many more subtle ways to funnel the liquidity and game the market than something so blatant.  Ways like this apparent front running in the Treasury buys...  http://jessescrossroadscafe.blogspot.com/2010/01/is-big-player-front-running-feds-buys.html

"Why would the Fed wish to provide extra liquidity, to the tune of $60 billion or so, for the banks during that week? There must surely be other ways to support the equity markets. Such as buying the SP futures in the thinly traded overnight session. I am not aware of a strong correlation for stock selloffs or extraordinary weakness in option expiry weeks per se.

It might not be a coincidence, but there could be some unrelated event in the mortgage markets that also occurs on the third Friday or Thursday of each month. We are not aware of it, but that does not mean it does not exist. They might also be making the purchases more randomly, but reporting them on some schedule as the Fed does its H.41 reports, for example. Anyone who might know of such a cross correlation would be kind to let us know of it.

Addendum 22 Jan: Several readers have written to suggest that the Fed is buying in the TBA markets, new issues, and that they have fixed settlement dates that roughly coincide with stock options expiration. That does not remove the potential material effect of providing liquidity in options expiry week, but it certainly does nullify the imputation of deliberation. I think the front running as noted in the blog today in Treasuries is more obvious and plausible.


But otherwise, it would be a good question to ask of the Fed. Are they in fact supplying extra liquidity to the banks at certain intervals to support a manipulation of the market to boost their prop trading results?"

EB's picture

Fed only breaks down as to maturity beginning Dec 09, but here it is...

EB's picture

Without regard to maturity, we can go back a bit farther...