The decline in foreign investor holdings of agency MBS continued in October, contributing to an overall year-to-date decline through that time of $57 billion, according to a Credit Suisse strategist.
Mukul Chhabra, mortgage strategy, Credit Suisse, said. "We believe…sales (in September and October) were likely driven by a combination of a rate view, concerns about a government-induced auto-refi program, and profit taking.
"We do not believe these sales represent a secular trend away from U.S. fixed income assets," he added. "The market has faded on the risk of an auto-refi event since October's end, which should help build confidence on that front.
"Going forward, we estimate that they will add a comparable amount (to what they have sold this year) on a net basis by the end of 2011," Chhabra said. "The clarity on government-sponsored enterprise reform, especially the explicit government wrap, is the key to determining the size and timing of net additions to their agency MBS holdings, in our view."