Agency MBS overseas purchases considerably increased in March. Bank of America Merrill Lynch analysts noted that gross agency MBS purchases were $14.6 billion while paydowns were projected to be $10.6 billion. This results is $4 billion worth of net purchases.
Meanwhile, agency MBS purchases net of paydowns turned positive for the first time in seven months, they also reported.
The biggest month-over-month rise in purchases of agency securities, which comprises agency MBS and debt, was from the U.K. According to BofA Merrill analysts, the demand out of the U.K. is usually driven by hedge fund purchases and not by central bank purchases.
This pick up in demand, analysts said, represents opportunistic buying from hedge funds after the Japanese earthquake resulted in a sell off in risky assets. Analysts said that it is notable that, together with an increase in agency MBS purchases, there was a considerable rise in purchases of U.S. stocks in March. This actually is a sign of opportunistic buying.
BofA Merrill noted, however, that long-term demand remains weak, specifically from official institutions.
"We discount the increase in demand for agency MBS in March as a one-off event and believe that long term demand of agency MBS from overseas investors is still poor," they said. According to the analysts, the size of current purchase programs from overseas buyers is not sufficiently big enough to offset runoffs in the portfolios of overseas investors.