The Federal Reserve in the week ending May 13 bought a gross $35.58bn in mortgage-backed securities (MBS) from mortgage Freddie Mac (FRE) and Fannie Mae (FNM), as well as from Ginnie Mae. The weekly purchases come as the latest installment of government investments designed to lift mortgage-related assets from banks’ balance sheets and encourage mortgage lending. The Fed bought $6bn MBS from Freddie, $27.33bn from Fannie and $2.25bn from Ginnie; the various purchases are scheduled to settle on the Fed’s balance sheet from May to August. In the same week, the Fed sold a total $8.43bn, relieving its balance sheet of $1.92 in securities with 30-year maturations and 5% coupons, which settle in June. The Fed also sold $1.93bn of 30-year MBS with 5.5% coupons, $1bn of which settles this month while the remaining $930m is slated to settle in June. The weekly purchases and sales once again show a discrepancy, as the Fed bought $5.1bn of 30-year MBS with 4.5% coupons to settle in June, $8.15bn of the same MBS to settle in July and another $5.25bn to settle in August. Meanwhile, the Fed only sold $950m of the same MBS, which settles in May, meaning the Fed took on $18.5bn of liabilities to settle over the next three months and only pushed 5% of that figure in comparable MBS off its sheet this month. In other words, the room the Fed made for that specific coupon barely touches the financial commitment that will come due before August. See a detailed chart of the Fed’s weekly purchases and sales. The discrepancy in these purchases and sales has made an impact on the Fed’s balance sheet in recent months. The balance sheet rose $75.11bn the same week ending May 13 to a total $2.12trn, according to a weekly summary released Thursday. The figure is up $1.25trn from the year-ago week ended May 14, 2008, partly due to the sizable amounts of MBS purchased through the program. Write to Diana Golobay. Disclosure: The author held no relevant investment positions when this story was published. Indirect holdings may exist via mutual fund investments.

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