By Isobel Kennedy

NEW YORK (MNI) – The New York Federal Reserve Thursday said it
bought $6.55 billion agency mortgage-backed securities this week under
the program the Open Market Committee announced September 21.

The largest purchases this week were in Fannie Mae and Freddie Mac
30-year “to-be-announced” securities with 4% coupons for December
delivery. Those buys totalled $3.15 billion.

The next largest purchases consisted of $1.6 billion Fannie Maes
and Freddie Macs with 3.5% percent coupons for January delivery.

The New York Fed also noted some adjustments to its positions due
to cancellations with MF Global from October 27 through November 2. Due
to the complexity of the topic, the Fed’s entire statement on the matter
follows:

“This week’s purchase table includes $950 million of purchases that
were made to replace transactions cancelled with MF Global Inc. (MF
Global). MF Global, which had been a primary dealer, recently came under
stress and ultimately a trustee was appointed pursuant to the Securities
Investor Protection Act to liquidate the business. During this time, the
Federal Reserve Bank of New York (the Bank) took progressive and
proportionate steps to manage its exposure to the firm and ensure the
ongoing effective implementation of monetary policy through open market
operations.

“The Bank ceased doing new business with MF Global and required the
firm to post margin in respect of its $950 million outstanding agency
MBS forward transactions with the Bank. The margin protected the Bank
against potential exposure to MF Global due to fluctuations in the
market value of the positions. When the firm was unable to meet a
subsequent margin call on these transactions, the Bank declared an event
of default, cancelled the transactions with MF Global and entered
replacement transactions with other firms.

“Replacement transactions were conducted in 30-year agency MBS and
included purchases of: $300 million FNMA 3.5% coupons for December
settlement, $100 million FNMA 4% coupons for November settlement, $200
million FNMA 4% coupons for December settlement, $250 million FHLMC 3.5%
coupons for December settlement and $100 million FHLMC 3.5% coupons for
January settlement.

“The cost of replacing the cancelled transactions with MF Global
was $3,089,843.75, which is based on the net difference between the
price of the original trades and the price of the replacement
transactions. The margin posted by MF Global was sufficient to cover the
replacement cost.

“When the trustee was appointed to liquidate the business, the Bank
terminated MF Global’s status as a primary dealer.

“These measures were taken to protect the public interest and
minimize risk to taxpayers, and under the framework of the primary
dealer policy. The Federal Reserve did not suffer any loss as a result
of the firm’s failure.”

** Market News International New York Newsroom: 212-669-6430 **

[TOPICS: M$U$$$,MMUFE$,M$$AG$,MN$MO$,MAU0B$]