The Federal Reserve aiming at reducing mortgage costs, bought $5 billion of Fannie Mae (FNM), Freddie Mac (FRE) and Federal Home Loan Bank corporate debt, in the open market on Friday, according to Reuters.
Results from the auction were positive:
Dealers submitted $12.9 billion for consideration in the Fed purchase. The Fed made heaviest purchases in Fannie Mae’s 3.875 percent notes maturing February 2010 and Fannie Mae’s 4.75 percent notes maturing in March 2010, buying more than half a billion each.
The Fed bought 33 issues, maturing between Dec. 10, 2009, and Nov. 15, 2010. Thirty-seven issues were eligible for the initial permanent-coupon purchases.
The central bank acquired bonds with maturities between December 2009 and November 2010, according to the New York Fed’s Web site.
Squarely targeting the plunge in home sales and house prices as well as strict lending conditions, the Federal Reserve announced last week it would initiate a program to purchase up to $100 billion of debt issued by GSEs.
The Fed plans to buy a whole range of maturities in the agency debt market as the program unfolds.
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Assume that there were no legal restrictions that required banks to hold deposits at Federal Reserve Banks. Would the ability of the Federal Reserve Banks to generate their own earnings be affected? The answer is no. To implement its monetary policy objectives, the Federal Reserve would still buy and sell Government securities. Its holdings of Government securities would still represent the primary source of the “base” under bank deposits. The Federal Reserve would pay for the securities just as it does now, with a check written on itself. Commercial banks would then be “paid.”