NEW YORK Feb 14 U.S. mortgage-backed securities
pared losses on Tuesday in step with the broader bond market
following comments from Federal Reserve Chair Janet Yellen, who
said she wants the central bank's balance sheet to be primarily
made up of U.S. Treasuries.
Yellen was replying to questions about the Fed's $4.5
trillion balance sheet during economic testimony before the
Senate Banking Committee.
The Fed's bond holdings had quadrupled from three rounds of
bond purchases with the goal to help the U.S. economy in the
"They want to reduce the balance sheet at some point in
time," said Walt Schmidt, head of mortgage strategy at FTN
Financial in Chicago.
Several Fed officials in recent weeks have raised concerns
that it may be time for the central bank to consider ending its
reinvestments in Treasuries and MBS as part of its policy
As of Feb. 8, the Fed held $2.46 trillion in Treasuries and
$1.74 trillion in MBS.
The Fed will be discussing its investment strategy on its
balance sheet in the coming months, Yellen said on Tuesday.
In late Tuesday trading, the price on 30-year, 3.5-percent
coupon MBS backed by Fannie Mae was down 5/32 at
102-1/32, after hitting a session low of 101-22/32. The yield
was 2.195 percent, up 2 basis points on the day.
U.S. five-year Treasuries were down 8/32 in price
for a yield of 1.965 percent, up over 5 basis points from late
(Reporting by Richard Leong; Editing by Leslie Adler)