Agency Mortgage-Backed Securities

The New York Fed is authorized by the Federal Open Market Committee (FOMC) to buy and sell agency mortgage-backed securities (MBS) for the System Open Market Account (SOMA) to the extent necessary to carry out the most recent FOMC directive. Dollar roll and coupon swap transactions may also be executed as needed to help facilitate the settlement of outstanding MBS purchases.

Purchases of agency MBS increase the quantity of reserve balances in the banking system; sales or principal paydowns reduce those balances. These transactions, which are conducted by the New York Fed's Open Market Trading Desk (the Desk), are executed with primary dealers.

The Desk reinvests the principal payments from agency debt and agency MBS holdings in the SOMA portfolio by investing in newly-issued MBS securities backed by Fannie Mae, Freddie Mac, or Ginnie Mae as directed by the FOMC. Details of the current SOMA portfolio management strategy are outlined in the most recent operating policy statement. Additional information on agency MBS operations is available in our Frequently Asked Questions.

From early 2009 through October 2014, the Federal Reserve added on net approximately $1.8 trillion of longer-term agency MBS and agency debt securities to the SOMA portfolio through its large-scale asset purchase programs. Agency MBS purchases were concentrated in newly-issued agency MBS in the To-Be-Announced (TBA) market, as these securities have greater liquidity and are closely tied to primary mortgage rates. The aim of these purchases was to put downward pressure on longer-term interest rates, support mortgage markets, and help to make broader financial conditions more accommodative.

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