Demand picture brightens with less GSE shedding

With Senate Banking Committee Chairman Richard Shelby (R., Ala.)'s GSE Bill currently on the back burner, the pace of Fannie Mae's portfolio contraction expected to slow in coming months and the anticipated removal of the 30% Freddie Mac capital surplus requirement, Street analysts have become more positive about MBS demand.

"While these developments do not imply that the GSEs are going to become significant buyers of agency MBS at current levels, it should reduce the additional supply coming to market from GSE selling recently," said Bear Stearns analysts in their most recent edition of Across the Curve in Rates and Structured Products.