(Bloomberg) --BlackRock Inc. has now liquidated the vast majority of the securities from failed banks it was tasked with selling, helping to end a supply glut that's contributed to some of the highest spreads on mortgage bonds since the 2008 financial crisis.
Weekly sales from BlackRock's Financial Markets Advisory unit have flooded investors with additional supply at a time when banks and the Federal Reserve have scaled back purchases. Of $114 billion in mortgage bonds and other assets it's helping the Federal Deposit Insurance Corp. liquidate, the investment management giant now has left to sell only around $6 billion to $7 billion of agency collateralized mortgage obligations, a type of mortgage bond, according to Citigroup Inc. That doesn't include some assets it may have decided not to sell.
BlackRock started liquidating Silicon Valley Bank and Signature Bank assets in mid-April, part of a task it was handed by the FDIC following the banks' failures in March. The sales have contributed to wider spreads on mortgage bonds — on Friday Fannie Mae current coupon MBS yielded 1.61 percentage point above Treasuries, some of the highest spreads in the past two decades.
The imminent end of the sales "removes a significant supply overhang in agency MBS," said Rich Estabrook, an MBS strategist at Oppenheimer & Co.
The bonds BlackRock has been selling predominantly came with low coupons, since they were largely created before interest rates rose sharply last year. Now that the liquidations are nearly over, money managers will be able to turn their attention to the higher coupon mortgage bonds being produced today, effectively an increase in demand.
"To the extent money managers continue adding agency mortgage bonds to their portfolios, they'll now be buying more of the higher coupon bonds being produced today, since there are essentially very few of the lower-coupon bonds left from the FDIC to sell," said Ankur Mehta, head of securitized products research at Citigroup.
BlackRock didn't respond to requests for comment while a spokesperson for the FDIC declined to comment.
Although only a fraction of the original portfolio remains to be sold, there is no timeline and it could still take several weeks or months to complete the process if the pace of recent sales continues.
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