With Fannie Mae and Freddie Mac scheduled to auction off $17 billion in mortgage bonds, the Wall Street Journal published an article warning that the move could strain demand in the mortgage bond market at a time when the Fed is considering a tapering of its accommodative monetary policies.
The WSJ explains that:
The offerings by year-end of residential and commercial securities without government backing will follow sales of about $22 billion the past four months from the government-controlled companies, according to Deutsche Bank AG. The auctions are adding to the $7 billion of new commercial-mortgage bond deals that Wall Street is planning this month, the biggest pipeline since Fannie Mae and Freddie Mac began the sales in May.
This is a problem because:
While the previous sales haven’t roiled markets, the future offerings may weigh on prices if Fannie Mae and Freddie Mac start to jettison riskier types of the debt, according to Brean Capital LLC’s Scott Buchta. “That could certainly have a bigger impact,” said Buchta, the New York-based brokerage’s head of fixed-income strategy. Dealers and investors readily absorbed the initial auctions because the “bonds have been higher quality in nature,” he said.
