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2025-09-17 09:48:42
PIMCO recommends pausing the Fed's reduction of MBS holdings to boost the housing market. 1. PIMCO (Pimco) said on Tuesday that the Federal Reserve should consider pausing its reduction of mortgage holdings to boost the US housing market. Since it began raising interest rates in 2022, the Fed has reduced its holdings of mortgage bonds on its balance sheet through quantitative tightening, which involves not reinvesting principal and interest payments from mortgage-backed securities (MBS) upon maturity. 2. According to a PIMCO report on Tuesday, the spread between US Treasury yields and mortgage rates has remained unusually high due to the Fed's continued reduction of MBS holdings over the past three years. As of Friday, the spread was approximately 230 basis points, near a historical high. This, in turn, has driven the average interest rate on a 30-year fixed mortgage to as high as 6.35%. The 30-year is the most common mortgage type used by Americans. PIMCO's Chief Investment Officer for Unconventional Strategies, Marc Seidner, and portfolio manager Pramol Dhawan wrote that if the Fed reinvested the proceeds from mortgage borrowers' principal and interest payments in MBS on its balance sheet, it could have an equally powerful effect on lowering mortgage rates as a rate cut. They wrote that at a time when monetary policy is politically contentious and inflation remains stubborn, the Fed may find that its most effective easing tools are already readily available.
