A market-wide slump in MBS fair market values accounted for most of the decline in reported bank holdings of these securities during the third quarter. And there was a significant increase in MBS held in bank trading accounts. (Includes two data charts.)
AGNC Investment and Annaly Capital Management provided preliminary third-quarter results this week. Book value declined and leverage increased on a sequential basis.
A higher-than-expected inflation reading for August led to volatility in interest rates this week, hurting the value of agency MBS. Still, the CEO of AGNC, a real estate investment trust focused on agency MBS, expects that concerns tied to the Fed will diminish by the end of the year.
The Federal Reserve’s pandemic-driven asset-buying spree altered the composition of assets and liabilities, a change that impacts balance sheet reduction.
Investors that once focused on lower tranches of non-agency MBS are shifting up in credit, seeing just as strong returns from AAA-rated tranches with fewer risks. Investors in agency MBS are also changing strategies as interest rates rise.
Falling market values for Fannie/Freddie pass-throughs played a big part in the decline in bank investment in residential MBS during the second quarter. Holdings of Ginnie MBS and non-agency securities were up. (Includes two data charts.)