Since the close of second quarter this year, data shows that large banks have reduced their holdings of securities by $66.7 billion and MBS by $27.5 billion late last month, said a recent report by Merrill Lynch.

Passthrough holdings, in particular, dipped by $23.5 billion over that period. While this drop in MBS holdings may be partly because of rapid paydowns of holdings that were not quickly re-invested into MBS or securities, the dip in overall securities (which is the net of MBS reductions) was probably due to sales. These reductions in securities and MBS holdings happened at the initial 50 basis points of the eventual 80 basis points backup that happened from June 30 to July 23.

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