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Fed to Start Buying Most Recently Issued Agency Debt
By Jody Shenn

Sept. 1 (Bloomberg) -- The Federal Reserve will begin buying the most recently issued agency debt under its plan to purchase as much as $200 billion of Fannie Mae, Freddie Mac and Federal Home Loan Bank corporate bonds.

“This change represents a technical adjustment designed to mitigate market dislocations and to promote overall market functioning,” the New York Fed said in a statement posted on its Web site today.

The program was expanded today from off-the-run securities, or debt from one of the government-chartered companies that isn’t part of the most recent issue in a specific maturity, according to the “frequently asked questions” document.

The update to the FAQ didn’t suggest any changes to the size or timing of the program, which is scheduled to run through year end. The central bank has bought $118.6 billion of the notes so far, according to data compiled by Bloomberg.

Under a related program, the Fed has purchased $792 billion of mortgage-backed securities guaranteed by Fannie Mae, Freddie Mac or Ginnie Mae.

The difference between yields on on-the-run five-year Fannie Mae debt and five-year Treasuries narrowed 0.03 percentage point to 0.32 percentage point as of 12:30 p.m. in New York, according to Bloomberg data. The spread is down from a record 1.59 percentage point last November.

The announcement eased concern in the market for debt from the government-sponsored enterprises that the Fed’s program would “expire quietly” without reaching its full amount or end-date, Jim Vogel, head of agency-debt research at FTN Financial in Memphis, Tennessee, wrote in a note to clients.