Commercial banks will be big buyers of agency MBS this year and help keep mortgage rates in check after the Federal Reserve withdraws from the market, according to the head of securitization strategy at Barclays Capital.

Managing director Ajay Rajadhyaksha said the banking sector is flush with cash and it normally starts buying — securities as the economy comes out of recession. "I would expect $400 billion to $500 billion of buying from banks in securities — primarily agency MBS in 2010," he told reporters. "I am not worried about mortgage-backed securities being bought," he added.

After buying $1.25 trillion in Fannie Mae, Freddie Mac and Ginnie Mae MBS over the past 15 months, the Fed is slated to exit the market at the end of this month.

Speaking at a National Association of Business Economics conference in Washington, the Barclays' MBS strategist said mortgage rates could rise 50 basis points in the second quarter and another 50 basis points by yearend.

However, pension funds, mutual funds and insurance companies were big sellers of MBS in 2009 and they will probably be buyers this year.

"Mortgage rates will rise but the backstop will come from the private sector," Rajadhyaksha said.

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