The Federal Open Market Committee decided “to await more evidence that progress will be sustained before adjusting the pace of its purchases,” it said in a press release.

That means the Federal Reserve will continue its  MBS purchases at a pace of $40 billion per month and longer-term Treasury securities at a pace of $45 billion per month.

The Committee is maintaining its existing policy of reinvesting principal payments from its holdings of agency debt and agency mortgage-backed securities in agency mortgage-backed securities and of rolling over maturing Treasury securities at auction.  

Securitization industry analysts predicted that the Fed would ease purchases, ahead of the meeting this week.

Deutsche Bank analysts for example, expected the Fed would trim its mortgage purchases by $5 billion and its Treasury purchases by $10 billion, thereby reducing monthly buying to $35 billion apiece for a total of $70 billion.

Analysts explained that the reason they believed the Fed would taper its mortgage purchases “is because the Fed does not plan on ever selling them— this is what Chairman Bernanke stated in his February Congressional testimony.”

“Consequently, we believe policymakers will begin the gradual process of slowing the rate of mortgage buying such that the organic maturing  of their mortgage holdings is less unwieldy,” said Deutsche Bank analysts.  

The decision to not taper its MBS purchases strengthens the outlook for storng technicals, according to a Bank of America Merrill Lynch research report. “Lower coupons should benefit, as rates are likely to rally in this scenario,” said analysts in the BofAML report.

 

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