to securitize a group of mortgages with an average primary mortgage rate of 4 percent. the originator pays a fee of about 50 basis points to fannie mae, freddie mac or ginnie mae, in return for a guarantee on the principal and interest payments of the underlying loans. the originator is also required to retain at least 25 basis points to cover costs associated with servicing the loan. since coupon rates on fed funds equivalents are calculated by comparing the change in the 10 - year treasury yield due to asset purchases to the change that historically occurred following movements in the target federal funds rate. this is a simple framework, so the uncertainty around this measure is likely large. for more information on the tba market, see vickery and wright ( 2013 ). bis central bankers ’ speeches agency mbs are offered in 50 basis point increments, the originator might choose to sell the remaining cash flows to investors in the tba market in the form of an agency mbs with a coupon rate of 3 percent and retain the remaining 25 basis points. 9, 10 in this case, the 3 percent tba contract would be the production coupon. 11 the desk focuses its purchases in production coupons because these securities are the most liquid segment of the tba market and their yields are closely tied to the primary mortgage rate through the dynamics i just described. purchases are distributed across different agencies, maturities, and coupons in amounts that are roughly proportional to anticipated gross issuance of those securities. purchases lower the yield on these securities relative to where they would otherwise be, which should enable originators to offer lower mortgage rates to borrowers. 12 lower borrowing rates should in turn help stimulate demand in the housing market, support home prices, and increase mortgage borrowers ’ purchasing power. as i mentioned before, asset purchases affect interest rates in part by removing risk from investors ’ portfolios. although it will not be the case in all interest rate environments, currently, purchasing newly issued production coupons removes from private hands securities that generally have greater exposure to duration risk, since the borrowers whose loans back these lower coupon agency mbs have limited incentive to refinance. 13 moreover, by purchasing in the tba market, investors also ultimately deliver securities that have relatively more prepayment risk than the more valuable securities that trade as specified pools. one difficulty with purchasing in a manner that is roughly proportional to anticipated gross issuance is that it can be difficult to forecast

should pay close attention to the risk of prolonging the period of accommodative financial conditions, which may lead to swings in economic activity and prices in the future, as the recent experience of the world economy suggests. in conducting monetary policy, the bank will continue to carefully assess the future outlook for economic activity and prices, closely considering the likelihood of its projections as well as factors posing upside or downside risks, and will implement its policies in an accordingly flexible manner. moreover, since global financial markets are expected to remain strained for some time and there are various uncertainties in the outlook for economic activity and prices, it is essential for the bank to maintain market stability. the world's economies now face serious challenges. the japanese economy is no exception. uncertainties remain elevated both in financial markets, real economic activity, and inflation. to deal with these challenges, we believe it is important to explain carefully how we assess economic conditions and how we conduct monetary policy. to this end, we, the policy makers, must be good communicators. providing necessary information appropriately will enhance the credibility of our policy - making. also, as globalization proceeds, it has become increasingly important to communicate internationally. i think these thoughts can be shared with people like you who are professionals in the field of communication. in closing, before i leave you i would like to express our strong commitment to make appropriate economic assessments and policy decisions, and to explain them to the public appropriately in a timely manner. thank you very much for your kind attention.