In its quarterly report on U.S. bond issuance released last week, the Bond Market Association reported that total bond issuance reached $5.48 trillion in 2004 versus $6.81 trillion in 2003. The major contributor to the decline was the drop in MBS issuance, which was impacted by the FOMC's embarking on its program to increase rates in a "measured" manner. Not factoring in MBS, bond issuance was down less than 1% in 2004 from the previous year.

For 2004, mortgage-related securities issuance dropped nearly 43% to $1.76 trillion from $3.07 trillion in 2003. Fourth quarter issuance totaled $410 billion, slightly higher than the third quarter level of $407 billion. Broken down by the various agencies, issuance of Fannie Mae MBS declined 56% in 2004 to $528 billion; Freddie Mac's issuance totaled $365 billion, down 48%; and Ginnie Mae issuance was down 42% to $127 billion. During 4Q04, agency MBS volume was $216 billion, down from the 3Q04's level of $223 billion. Agency CMO issuance also fell in 2004 to $358 billion from $596 billion in 2003. For the quarter, issuance hit $79 billion versus $82 billion in 3Q04. While agency issuance was lower, private label MBS was 12% higher at $387 billion last year. One reason for this, says the BMA, was that with Fannie and Freddie's focus on building capital ratios, non-agency issuers were increasingly able to use the MBS market to fund mortgage acquisitions.

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