Fed's balance sheet expansion with agency MBS reduced risks in liquidity, market depth and optionality/convexity

this is a crucial point to understand - it wasn't just the Fed buying agency MBS, but the explicit government guarantee that accompanied it

thus, the yields fell

Illya Gerasymchuk 2025-08-02 16:52

Ginnie & Fannie Mae conservatorship in Sept 2008 made agency MBS default risk free

essentially, the US Treasury covers all losses from GNMA and FNMA up to $200 billion each

from the total $400B budget ≈$170B are still available

once exhausted it will surely be increased