Fed's Program to Purchase Treasuries, Mortgage and Agency Securities - Update

The March 18, 2009 Fed policy statement introduced the program to purchase $300 billion of Treasury securities. The plan to buy agency debt was raised by $100 billion to $200 billion and the mortgage backed securities purchase plan was increased by $750 billion to $1.25 trillion. As of today, the Fed has purchased $95.7 billion of Treasury securities (Federal Reserve Bank of New York - Permanent Open Market Operations), with roughly $204 billion remaining under the announced program. The 10-year Treasury security rallied on the day of the announcement to 2.51% but has since traded above this rate, with the latest reading at 3.16%, following a closing quote of 3.29% on May 8 (see chart 1). The upward trend of Treasury yields appears to be a sign of improving economic conditions and an increase in supply of Treasury securities in the pipeline.

The Fed's announcement of enhanced purchases of agency debt (total purchases as of 5/6/09 is $71.47 billion) and of mortgage-backed securities (total purchases as of 5/7/09 is $365.8 billion) have resulted in bringing down mortgage rates (see chart 2 and 3). The 10-year Treasury note yield and mortgage rates are moving in opposite directions, a new record for the history books (see chart 4).