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Thursday, December 03, 2009

Fed's Sack: MBS Purchases Lowered Mortgage Rates by 100 bps

by Calculated Risk on 12/03/2009 12:00:00 AM

From the WSJ Real Time Economics: The Fed’s Market’s Guy Eyes Asset Sales and Rate Increases (ht Paul)

Brian Sack, who runs the markets group of the Federal Reserve Bank of New York, spoke to the Money Marketeers of New York University ...

Mr. Sack’s group estimates that the Fed’s purchases of $300 billion in long-term Treasury securities earlier this year helped to push yields on 10-year Treasury notes down by about half a percentage point. ... Purchases of mortgage backed securities, he says, pushed those rates down by a full percentage point.
This is significantly higher than my estimate of 35 to 50 bps and suggest mortgage rates might rise sharply next spring (the MBS purchase program is scheduled to conclude by the end of the first quarter of 2010).

Update: Apparently Sack's might have been referring to the decline from the peak of the panic (not clear from the brief excerpt). Of course the purchases started in January - months after the peak of the panic - and that isn't what people are interested in.