Net new issues of agency securities turned negative in Q3 2005, as a result of the federal government’s crackdown on operations of Fannie Mae in late 2004.

(See: Flow of Funds Table F210, Agency- and GSE-backed Securities.)

This represents a withdrawal of over US$540 billion in the annual supply of these popular debt securities (the average net new issues from 1998 to 2003). This is part of the answer to Chairman Greenspan’s ‘conundrum’ as to why long-term interest rates did not rise as expected, in response to the Federal Reserve’s manipulation of short-term rates and the subsequent economic recovery.

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