The Federal Reserve's purchases of MBS are affecting the supply-demand balance of MBS collateral in the repurchase markets, according to a Barclays Capital report.

This has narrowed the one-month term repo MBS spread to Treasury collateral to 2 basis points from 14 bps in March when the Fed began its purchases, according to a June 15 report by Joseph Abate, a U.S. fixed income strategist at Barclays Capital.

"At the same time, usage of the Federal Reserve's [Term Securities Lending Facility] for schedule one collateral (essentially MBS) has evaporated, with no bids at any of the collateral swap auctions for several weeks," said Abate, in his Weekly Collateral Update report.

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