Federal Reserve commences CMBS purchases

by Phil Hall30 Mar 2020

As part of its ongoing effort to support the US economy in the face of the COVID-19 pandemic disruptions, the Federal Reserve has activated its Open Market Trading Desk – informally known as the Desk – to increase the System Open Market Account (SOMA) holdings of agency mortgage-backed securities in what it called “the amounts needed to support smooth market functioning.”

Starting March 27, the Desk began purchasing agency commercial mortgage-backed securities (CMBS). In a statement, the Fed said the Desk will purchase up to $1 billion of fixed rate Fannie Mae Delegated Underwriting and Servicing pools (DUS), with a 10-year loan term, a yield maintenance protection term of 9.5 years and a weighted average life greater than or equal to seven years. 

Furthermore, the Desk, through its investment manager, will solicit offers from primary dealers and acquire up to $1 billion. The minimum lot size per CUSIP for this operation is $5 million in current face value. 

The Desk is also anticipating three additional operations on March 31, April 2 and April 3 for a tentative total purchase amount of approximately $3 billion, covering fixed-rate Fannie Mae DUS pools, fixed-rate Freddie Mac K-series Deals and Ginnie Mae Project Loan pools.