Mortgage Bonds Suffer Worst Month In 2 Years As 'Marginal Buyer' Fed Pulls Out

It is a good idea to take notice when something happens that did not occur in 4 decades.

For the first time in a very long time, there will not be a government entity, either the US Fed or Freddie/Fannie, to provide liquidity for mortgage backed securities. These assets are going to have to stand on their own.

This could be a problem if the economy goes sours and people start defaulting on their homes.

The Fed is intent on lowering the balance sheet. This resulted in a $33B decrease in their holdings this past week. It was this action that caused what Bloomberg called a "bloodbath".

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