Treasury To Sell $10 Billion In Securities Monthly
The US Treasury on Monday announced its intentions to begin selling about $10 billion of mortgage-backed securities each month as it looks to wind down the government’s involvement in the mortgage industry, brought on by the nation’s financial collapse in 2008. The move surprised a number of investors, but analysts say the plan should be manageable after absorbing the news.
The Treasury currently holds a portfolio of $142 billion worth of mortgage-related securities, which it acquired at the height of the financial crisis in 2008 and 2009. Economists estimate that it will take a year minimum for Treasury to empty the portfolio. Most of Treasury’s mortgage portfolio consists of 30 year fixed-rate mortgage-backed securities guaranteed by Freddie Mac or Fannie Mae, the two government-controlled mortgage giants that were seized by the government in fall 2008 as the financial crisis was in full-swing.
US debt prices fell after the Treasury announcement as investors assumed the fresh debt supply would compete with Treasuries in fixed-income portfolios. A spokesman for Treasury estimat6ed that the agency would earn a profit of $15 billion to $20 billion on the asset sales, depending on how the market performs as they’re being sold. He added that the sales would occur at pre-scheduled times and that the sales could occur daily.
Fannie and Freddie Mac were placed under government conservatorship in September 2008, which effectively made US taxpayers the proud owners of about $5 trillion worth of debt. At the time, markets were unwilling to purchase securities backed by the two entities, so the government was forced to step in to keep the nation’s mortgage system afloat. Legislators are still working on sweeping housing finance reform to prevent similar collapses in the future