By Isobel Kennedy

NEW YORK (MNI) – In the week ended December 21, the New
York Federal Reserve bought $8.75 billion agency mortgage-backed

The largest purchases in the latest week were in Fannie Mae and
Freddie Mac 30-year “to-be-announced” TBA securities with 3.50% coupons
for February delivery. Those buys totalled $3.50 billion.

The next largest purchases were $3.20 billion Fannie Mae and
Freddie Mac 30-year TBAs with 4.00% coupon for January delivery.

In this latest week, the NY Fed did not make any purchases or sales
of the TBA dollar rolls.

In other news, this past Tuesday, the Federal Reserve released its
Dodd-Frank implementation proposal.

The Fed said, “The definition of highly liquid assets would ensure
that the assets in the liquidity buffer can easily and immediately be
converted to cash with little or no loss of value. Thus, cash or
securities issued or guaranteed by the U.S. government, a U.S.
government agency, or a U.S. government-sponsored entity are included in
the proposed definition of highly liquid assets.”

There was some confusion in the Street as to what this actually
means for the status of Fannie Mae and Freddie Mac mortgage backed
securities versus Ginnie Mae MBS. Analysts will likely continue to delve
into this next week.

Strategists at Credit Suisse say the Fed’s proposal states that
Fannie Mae and Freddie Mac MBS will be included in the “highly liquid”
category to meet the liquidity coverage ratio (LCR) requirements in
addition to Ginnie Maes, MBS and Treasuries.

This does not imply, Credit Suisse said, that Fannies and Freddies
would have a zero risk weighting vs. their current 20% status.

Credit Suisse also says it is not clear if the proposal classifies
Fannies and Freddies as “level 1″ liquidity investments under Basle III.

“They are currently considered ‘level 2′ liquidity instruments,
which allows them to comprise up to a maximum of 40% of the liquidity
buffer. This contrasts with level 1 assets, which are uncapped in their
ability to meet liquidity needs,” Credit Suisse says in a report.

The bottom line, Credit Suisse says, is that Fannies and Freddies
will at best be level 1 liquidity instruments for LCR and “are not going
to zero risk weighting anytime soon.”

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