Agency Bond Market Dries Up: 2005

In 2005, net issues of agency and GSE-backed securities were only 7.8% of levels of 2001, when Fannie Mae was in her heyday, aggressively flogging mortgages to the masses.

In 2005, net issues of agencies were only $50.7 billion, indicating that this sector had become far less important in the fixed income market than at any time in the last decade. (See: Federal Reserve national flow of funds account F210.)

However, Fannie Mae and her kin are not dead and are coming back.

In Q4 2005, net issues of agency securities rose to $377.3 billion (annual rate).

This was still only 58.7% of the rate of net issues in 2001, but is a definite proof of life.

Much of the mortgage securitization business that was handled by the agencies went to issuers of asset-backed securities, controlled by commercial banks, after the government put restrictions on Fannie Mae, encouraging CEO Franklin Raines to step down.

As the agencies get their capitalization and accounting in order, competition in this segment of the fixed income market can be expected to heat up.

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