TMPG Best Practices encourage market participants who have amassed a particularly large position in the agency MBS market to manage that position mindful of the need to support market liquidity and to take care that sudden changes in trading strategies do not adversely impact liquidity or settlement.13 The Desk has consistently transacted in the dollar roll market when purchasing MBS to facilitate the orderly settlement of its purchases and will continue to do so as necessary to avoid deterioration in the liquidity of these contracts.14 So far, there seems to be little evidence that the current pace of purchases is straining the market’s ability to deliver securities to us. The current monthly pace is within the range seen during the Federal Reserve’s previous asset purchase programs, whether measured in par terms or when adjusted for duration risk. Treasury purchases make up only about 25 percent of monthly gross issuance of coupon securities, and current SOMA holdings are less than 20 percent of coupon Treasuries outstanding, although in some maturity sectors these percentages are significantly larger. The FOMC’s capacity to purchase MBS is somewhat more difficult to gauge, given the uncertainty around future mortgage origination discussed earlier. Since the beginning of the current purchase program in 2012, we have purchased nearly $ billion in MBS on average per month, including reinvestments. This translates into about 50 percent of monthly gross issuance, below the monthly purchase rate of roughly two-thirds during the first round of large-scale MBS purchases in 2009.

14  Selling dollar rolls when concerns arise about the availability of certain TBA contracts is conceptually similar to making SOMA Treasury holdings available to the market through our securities lending program. One key difference is that the Desk offers settled Treasury holdings to the market through its securities lending program, whereas the Desk only rolls unsettled MBS holdings. BIS central bankers’ speeches  5  directive, with the goal of supporting a stronger economic recovery in the context of price stability. References Fleming, Michael (2000). “The Benchmark U.S. Treasury Market: Recent Performance and Possible Alternatives.” Federal Reserve Bank of New York Economic Policy Review, Vol. 6, no. 1 (April): 129–45. Fleming, Michael (2002). “Are Larger Treasury Issues More Liquid? Evidence from Bill Reopenings.” Journal of Money, Credit, and Banking, Vol. 34, no. 3 (August): 707–35. Gagnon, Joseph, Matthew Raskin, Julie Remache, and Brian Sack (2010). “Large-Scale Asset Purchases by the Federal Reserve: Did They Work?” Federal Reserve Bank of New York Staff Reports, no. 441, March. Hancock, Diana, and Wayne Passmore (2011). “Did the Federal Reserve's MBS Purchase Program Lower Mortgage Rates?” Journal of Monetary Economics, Vol. 58 (July): 498–514. Krishnamurthy, Arvind, and Annette Vissing-Jorgensen (2011). “The Effects of Quantitative Easing on Interest Rates: Channels and Implications for Policy.” Brookings Papers on Economic Activity, no. 2: 215–65. Li, Canlin, and Min Wei (2012). “Term Structure Modelling with Supply Factors and the Federal Reserve’s Large Scale Asset Purchase Programs.” Finance and Economics Discussion Series 2012–37. Washington: Board of Governors of the Federal Reserve System, May.