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Fed Actions Have Mortgages Roaring

Much ado about everything this am, as the Federal Reserve announced the creation of Term Asset-Backed Securities Loan Facility (TALF), a facility that will help market participants meet the credit needs of households and small businesses by supporting the issuance of asset-backed securities (ABS) collateralized by student loans, auto loans, credit card loans, and loans guaranteed by the Small Business Administration (SBA).

Under the TALF, the Federal Reserve Bank of New York (FRBNY) will lend up to $200 billion on a non-recourse basis to holders of certain AAA-rated ABS backed by newly and recently originated consumer and small business loans. The FRBNY will lend an amount equal to the market value of the ABS less a haircut and will be secured at all times by the ABS. The U.S. Treasury Department--under the Troubled Assets Relief Program (TARP) of the Emergency Economic Stabilization Act of 2008--will provide $20 billion of credit protection to the FRBNY in connection with the TALF. The vintages are for newly and or recently created loans on Autos, Credit Cards, and SBA lending.

The Federal Reserve will also commit up to $500 Billion toward the purchase of GSE and FHA mortgage-backed securities (FNMA, FHLMC, and GNMA labels). This is what was needed when TARP was originally broached to Congress and should make for the inverted or extremely positive price action to drive rates lower. Flows have been two way, as money managers have been early buyers while banks are sellers at these elevated levels.

Currently, the 30yr stack is up over two points along the new 30yr Current Coupon champion 5%s ($101 handle) while 4.5%s head toward par themselves-$99- handle. 15yrs are operating much the same way as 15yr CC is now 4.5% at a low par handle. Treasuries are well higher themselves with the 10yr note now 3.13%, and the 2s/10s yield curve flatter and back toward +190. Swaps are nine to 16 bps firmer this am as well. MBS spreads are one point tighter in 5.5%s, and 55/32nds tighter along CC 5%s. 4.5%s are in a massive price correction mode and are "seen" loosely at two points firmer thought the price action the next few days will be more indicative-with next week"s fuller trading even more definitive. 15/30 swaps are logically lower 1/2 point off the flatter curve and rampant 30yr action. OTRs have lost that "loving feeling" in GN/FN space while Golds are almost in line to longer FNMAs. Albert Durso -- Thomson Reuters