The unrelenting selling in the MBS markets has gotten a bit out of hand, and has a panicked feel. This may have something to do with the Fed, who suggests that the present quantitative easing (QE) program may be modified in the near future. This is not a surprise as Fed chairman Ben Bernanke said, at some point the Fed would begin exiting, likely inch by inch but obviously not in one fell swoop as the market decline over past few weeks seems to imply (see chart).
The current QE program involves the Fed purchasing $85 billion per month in mortgage-backed securities (MBS) and Treasury bonds. The Fed’s goal with QE is keeping long-term interest rates, including mortgage rates, low. Continue reading