Fed Forcing the Long End of the Curve Down

"Fed Forcing the Long End of the Curve Down; Consequences of Unemployment Rising Through 9% in '09 Would Nulify this Juggling Act as Good Money Burns; Extreme caution to Equity Longs Until the Market is Free From this kind of Gov't Manipulation" NEW YORK (Dow Jones)--The U.S. Federal Reserve more than doubled its buying of mortgage bonds guaranteed by Fannie Mae (FNM), Freddie Mac (FRE) and Ginnie Mae in the second week of its program to support the housing market. The central bank bought $23.4 billion of the bonds in the week ended Jan. 14, after purchasing $10.213 billion in the previous week, it reported Thursday. It has pledged to buy $500 billion, or more, of these bonds in the first half of the year, with the goal of pushing down mortgage rates. The bulk of the Fed's purchases was of mortgage bonds guaranteed by Freddie Mac. It bought $15.83 billion of its bonds, after buying $6.899 billion last week. The bank bought $5.63 billion of Fannie Mae bonds, following a purchase of $2.864 billion in the previous week. It also bought $1.95 billion of Ginnie Mae bonds. Last week, that figure was $450 million. The Fed's program is one of many it is juggling as it expands its role in the financial markets. Like last week, much of its buying was concentrated in the 30-year 4%, 4.5% and 5% coupons, according to Fed data. "The Fed is the only significant buyer of low coupons right now," said Walt Schmidt of FTN Financial. The current coupon or that closest to par is the mortgage bond with a primary mortgage rate of 4% on its 30-year loans. Typically, lenders add additional charges and fees to this primary rate to come up with the final mortgage rate homeowners pay. There was little reaction to the data on Thursday, Schmidt said. Risk premiums on agency mortgage-bond securities were wider by two to three basis points versus Treasurys. Average risk premiums on the outstanding mortgage bonds are quoted at 200 basis points versus a close of 194 basis points on Wednesday. -By Anusha Shrivastava, Dow Jones Newswires; 201-938-2371; anusha.shrivastava@dowjones.com Click here to go to Dow Jones NewsPlus, a web front page of today's most important business and market news, analysis and commentary: http://www.djnewsplus.com/access/al?rnd=%2B6D38XNvDKAnlWlIhppH1g%3D%3D. You can use this link on the day this article is published and the following day. (END) Dow Jones Newswires January 15, 2009 15:56 ET (20:56 GMT) Copyright (c) 2009 Dow Jones & Company, Inc.- - 03 56 PM EST 01-15-09