Fannie, Freddie place large bids for mortgage-backed securities

Core Viewpoint - Fannie Mae and Freddie Mac are increasing their purchases of mortgage-backed securities (MBS) to capitalize on market volatility and a recent selloff, following a directive from President Trump to acquire $200 billion in MBS to enhance housing affordability [1][2]. Group 1: Market Activity - The government-controlled entities are stepping into a market affected by widening bond spreads and increased volatility, aiming to expand their portfolios of bonds and loans [1][2]. - The increased buying activity could help mitigate a recent rise in mortgage rates, which have reached a three-month high due to broader market pressures, including the US-Iran conflict [3]. Group 2: Portfolio Management - Fannie Mae and Freddie Mac are significant holders of US mortgage debt through their retained portfolios, which consist of bonds and loans they keep rather than sell [4]. - The combined portfolio value of Fannie and Freddie, which was $1.5 trillion before entering federal conservatorship in 2008, decreased to $158 billion by late 2022 but has since risen to $278 billion as of January [5]. Group 3: Impact of Government Directive - Trump's directive for increased bond and loan purchases led to a notable shift in the $9 trillion MBS market, with yields on recently issued securities narrowing by approximately 0.2 percentage points [6]. - Despite the directive, the pace of purchases by Fannie and Freddie has been modest, likely due to already compressed risk premiums on many mortgage bonds, limiting profit potential [6].