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Home > Markets > Open Market Operations
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Reinvestments of Principal Payments on Agency Securities into Agency MBS
   

Purchases in agency MBS for the System Open Market Account (SOMA).

 

Gross purchases from October 27 through November 2: $6,450 million
Sales (dollar rolls) from October 27 through November 2: $0.0 million
Cancels from October 27 through November 2: $950 million*
Net purchases from October 27 through November 2: $5,500 million

All amounts reflect current face.
Purchases summarize all trades executed during the indicated period including purchases associated with dollar rolls
Purchases ($ million)
Maturity
Coupon
Settlement Month
FHLMC
FNMA
GNMA
GNMA2
30 Year
 3.5 Dec 250 300 0 0
  3.5 Jan 650 950 100 100
  4 Dec 1,100 2,050 0 0
  4 Nov 0 100 0 0
  4 Jan 0 0 150 150
             
15 Year 3 Jan 150 200 0 0
  3.5 Jan 100 100 0 0
             
Total     2,250 3,700 250 250
*This week's purchase table includes $950 million of purchases that were made to replace transactions cancelled with MF Global Inc. (MF Global). MF Global, which had been a primary dealer, recently came under stress and ultimately a trustee was appointed pursuant to the Securities Investor Protection Act to liquidate the business. During this time, the Federal Reserve Bank of New York (the Bank) took progressive and proportionate steps to manage its exposure to the firm and ensure the ongoing effective implementation of monetary policy through open market operations.

The Bank ceased doing new business with MF Global and required the firm to post margin in respect of its $950 million outstanding agency MBS forward transactions with the Bank. The margin protected the Bank against potential exposure to MF Global due to fluctuations in the market value of the positions. When the firm was unable to meet a subsequent margin call on these transactions, the Bank declared an event of default, cancelled the transactions with MF Global and entered replacement transactions with other firms.

Replacement transactions were conducted in 30-year agency MBS and included purchases of: $300 million FNMA 3.5% coupons for December settlement, $100 million FNMA 4% coupons for November settlement, $200 million FNMA 4% coupons for December settlement, $250 million FHLMC 3.5% coupons for December settlement and $100 million FHLMC 3.5% coupons for January settlement.

The cost of replacing the cancelled transactions with MF Global was $3,089,843.75, which is based on the net difference between the price of the original trades and the price of the replacement transactions. The margin posted by MF Global was sufficient to cover the replacement cost.

When the trustee was appointed to liquidate the business, the Bank terminated MF Global's status as a primary dealer.

These measures were taken to protect the public interest and minimize risk to taxpayers, and under the framework of the primary dealer policy. The Federal Reserve did not suffer any loss as a result of the firm's failure.
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