The Federal Reserve just released a paper titled The Federal Reserve’s Portfolio and its Effects on Mortgage Markets. To access the full paper, please click here.
In the paper, the Fed offers an empirical analysis of the effects of the its asset holdings on MBS yields and mortgage rates.
The agency said that understanding the specifics of the U.S. mortgage markets, specifically the linkages between the secondary and primary mortgage markets, is key.
The Fed's portfolio holdings impact mortgage markets via both a "portfolio balancing channel" and an "excess reserves" channel, the paper stated.
These two areas can work in opposite ways and their magnitudes are hard to project. However, the net impact is that the larger Fed portfolio holdings appear to have placed considerable downward influence on MBS yields and mortgage rates.