The Federal Reserve announced that it will buy an additional $750 billion in agency MBS through the end of the year.

According to research from JPMorgan Securities, this will bring the Fed's total targeted purchases to $1.25 trillion and. will clearly dwarf the amount of 2009 net issuance. JPMorgan is projecting this volume to reach $420 to $480 billion, assuming a 4.5% to 5% mortgage rate.

Additionally, analysts said that the Fed purchases alone will probably  make up 60% to 65% of the agency MBS gross issuance this year. Adding in $250 billion of expected Treasury purchases, total government sponsorship will account for 70% to 80% of gross issuance, they said.

Meanwhile, the Fed will buy up to $300 billion in Treasuries in the next six months. JPMorgan's rates strategists' prediction for Treasury supply is around $170 billion per month. The Fed's purchases will probably make up for about 30% of expected Treasury supply.

JPMorgan said that the relative demand/supply imbalances coming from the Fed announcement will be supportive of mortgage valuations going forward.

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