Treasury To Sell Mortgage-Backed Securities Portfolio (STT)

The U.S. Treasury is finally getting on with its asset disposition plan.  This morning came the long-awaited announcement that it will start to sell its remaining portfolio of $142 billion held in agency mortgage-backed securities.  The sale is being called an “orderly wind down of its remaining portfolio” and is expected to begin this month.

This sale plan is estimated to run at a rate of $10 billion in MBS sold per month.  The good news if you are tied in any way to the mortgage markets is that these sales are subject to market conditions and the Treasury can halt sales immediately if they are disruptive to markets.

All of these securities were purchased under the Housing and Economic Recovery Act of 2008 and was one part of the bank and financial system bailout.  A key observation is that these agency-backed MBS markets have continued to improve since 2008 and 2009 when these were purchased.

Perhaps the most important issue for the “kill the capitalists” crowd is that the Treasury expects to make a profit for taxpayers at current prices. The sale is also said to have no impact on previously stated debt management objectives.

State Street Global Advisors, part of State Street Corp. (NYSE: STT) will manage the wind down of this investment and the Treasury will post the sales of each asset sale monthly on its website by coupon and agency.

This comes at a time when the Treasury is also moving to exit its remaining TARP investments in private bank and financial companies, which the Treasury has said has been repaid by 99%.

JON C. OGG