Mortgage traders track the purchases of mortgage bonds by the Federal Reserve.
Mortgage-backed securities lost 0.18 percent in May, while Treasury bonds rose in their worst since January 2020, the publication said. Robert Kaplan, president of the Federal Reserve Bank of Dallas, said the housing market does not need the support it receives from the central bank.
“If the Fed is concerned about inflation and wants to do something, they should move away from mortgages and invest more in Treasury bonds,” Jake Remley, senior portfolio manager at Income Research + Management, told the publication.
Fed Chairman Jerome Powell didn’t point to the central bank’s hand, but ditching mortgages would give him more room to support the treasury market as President Joe Biden seeks to realize his national infrastructure plan, which may require significant borrowing.
According to Bloomberg News, consumer prices in the US jumped last month, pushing the 10-year break-even rate up, which is a measure of the annual inflation rate for the bond market expected over the next decade.
The Fed not only bought mortgages, but also added $ 80 billion in Treasury bonds to its balance sheet every month. Participants in the April meeting said they should discuss reducing this amount if the economy continues to grow rapidly, the newspaper said.
Some industry experts believe the Fed may discuss plans to cut bond purchases this summer, Bloomberg News reported. Others think it’s unlikely that the Fed will first ditch the mortgage market, but instead opt for its 2014 model, when it slowed purchases of Treasury bonds and mortgage-backed securities at the same rate.
“We think they’re likely to go that route because it’s the easiest way to communicate and doesn’t necessarily have any unintended consequences,” said Alex Rover, head of US betting strategy at JPMorgan Chase.
[Bloomberg News] – Cordilia James