Skip to main content

SUGGESTION TO THE FEDERAL RESERVE CHAIRMAN BEN BERNANKE


SUGGESTION TO THE FEDERAL RESERVE CHAIRMAN BEN BERNANKE

To:               The Right Honorable Federal Reserve Chairman Ben Bernanke

From:           Athinarayanan Sanjeevraja

Date:            08.11.2011

RE:               Large Scale Asset Purchase Programme (Mortgage Backed securities)

Suggestion:    At least targeting the long end of the yield curve while purchasing MBS

Good Morning Chairman.  Bloomberg reported that Federal Reserve plan to buy a mortgage backed securities to ail the U.S. housing market. If I am not mistaken, In late 2008, Federal Reserve intention in buying Large Scale Asset Purchases in an effort to hold down the level of long term interest rates to increase the availability of credit for businesses and households. As a result, still unemployment is very high level, corporate America earnings are still fragile. I agreed that Large scale asset Purchase improved liquidity conditions in the market, increase the turnover volume, diminish the new issuance premium on corporate bonds but it constricted bid-ask spreads and the spread between treasury yields and OIS rates. I also observed that when Federal Reserve initial announcement its Treasury debt purchase programme, yields have declined. While Federal Reserve completed its Treasury debt purchase, yields have risen. Based on this evidence, I conclude that the expiration of the any asset purchase programme has so far had only a limited effect on credit costs. At the end of the asset purchase programme market in advance while the velocity of purchases also diminished over time.

Bloomberg reported that again Federal Reserve plan to buy Mortgage-backed Securities (MBS) to ails the U.S. housing market. I agreed that the MBS purchase programme has successfully contributed to the reduction in mortgage interest rates. At the same time MBS purchases have also affect the mortgage interest spreads especially prepayment risks which is impact the yields on MBS because most of the mortgages entail a prepayment option. You can control for the prepayment risk in the basic mortgages by considering the effect of MBS purchase programme on the swap-option adjusted spread. But the swap option adjusted spread is the yield spread of the MBS over a term structure of substitute interest rates after controlling for the value of the prepayment option. So I conclude that controlling for prepayment risks proposed the MBS purchase programme had a little impact. In fact it is likely to be some upward pressure on MBS rates as market conditions normalized. For instance, the lack of alternative available credit related assets, an expansion in banks securities book and limited net new mortgage supply. I think that unwind of Federal Reserve holdings could trigger a more pronounced rise in credit costs, although such actions appear improbable in the immediate future. But it will.

Let me conclude it, Federal Reserve plan to purchase MBS will not cure all that trouble the housing market. Still Federal Reserve want to repurchase MBS, it should strive to ensure that decline at the long end of the yield curve. In addition, The American President refinancing plan (HARP) isn’t really decisive decision. The health of the global economy will depend on the sustained recovery in the U.S. economy. Will this MBS purchase programme is intend to support?

Thank you very much for letting me states my opinion.

I am Athinarayanan Sanjeevraja with great respect of Federal Reserve Chairman Ben Bernanke.

http://www.athinarayananadvisoryauthority.blogspot.com

Comments

Post a Comment

Popular posts from this blog

Nagorno-Karabakh conflict

To put things into perspective, Nagorno-Karabakh is not an independent entity but an occupied territory of the Azerbaijan Republic and is recognised by the international community and the UN. The fact that the Armenian Prime Minister's son is doing his military service in the Armenian army located in Azerbaijan's Nagorno-Karabakh and started an undeclared war against Azerbaijan, occupied Nagorno-Karabakh and 7 adjacent regions of Azerbaijan, and massacred and forcefully deported Azerbaijani aborigines was the main reason for the lack of peace in the region. The laws of armed conflict failed to protect the Nagorno-Karabakh civilian population, individual civilians, and civilian property. The laws of armed conflict failed to discriminate between those taking parts in the fighting in Nagorno-Karabakh. The laws of armed conflict failed to protect the environment as war causes severe or long term damage to the environment. The fact here is that there is a number of international doc...
Post a Comment
Read more

SUGGESTION TO THE FEDERAL CONSTITUTIONAL COURT, GERMANY

SUGGESTION TO THE FEDERAL CONSTITUTIONAL COURT, GERMANY  To:               The Right Honorable Federal Constitutional Court Vice President  From:           Athinarayanan Sanjeevraja Date:            05.10.2011 RE:               Issuance of Eurobond   Suggestion:    Approval of Issuing Eurobond Good Morning Prof. Dr. Kirchhof. I am writing to express that Federal constitutional court explicitly rules out Eurobonds a few weeks ago. In addition you had warned, Ms. Angela Merkel, a Chancellor of the Federal Republic of Germany, never again to propose Eurobond. This is certainly not good news for me as well as Europe. German brothers and sisters in the Euroland must help in this difficult moment with iss...
Post a Comment
Read more

SUGGESTION TO THE PRIME MINISTER OF JAPAN YOSHIHIKO NODA

SUGGESTION TO THE PRIME MINISTER OF JAPAN YOSHIHIKO NODA To: The Right Honorable Japanese Prime Minister Yoshihiko Noda From: Athinarayanan Sanjeevraja Date: 30.09.2011 RE: Japan Energy Policy Suggestion: Changing Industrial Policy Good Morning Prime Minister. BBC World broadcasted your speech regarding alternate energy sources. I agree with your approach to reduce nuclear power in the medium term because having the nuclear reactors in an earthquake prone zone is not safe for the environment or the communities that live near them. Japan is struck in a difficult situation concerning energy. If you want to eventually move away from the nuclear energy, you’ll have to invest more alternative energy sources. If you can’t invest, then it may have to say with a nuclear power for a while. You need make the right decision because source of energy is dwindling. You have one more option which is Japanese people depend on nuclear power with only 1% but 9% including hydroe...
Post a Comment
Read more