The FDIC has remained tight-lipped about its securities holdings but announced plans to market a $60 billion Signature Bank loan portfolio, mostly composed of commercial real estate debt, on Monday.
The challenge for the FDIC will be to maximize the value of any sale, which comes at a challenging time for the MBS market as prices have been hurt by rising interest rates and volatile moves in US Treasuries.
Prices have already been affected by the anticipation of the FDIC’s sales, and the extra yield demanded to hold securities with 2% to 2.5% coupons has widened by 0.18 to 0.27 percentage points more than the equivalent Treasuries over the past month.
The FDIC is planning to sell a large portfolio of mortgage bonds, but there are several factors to consider. One of the main concerns is supply, as the market is still fragile after a downturn last summer.
The FDIC must balance political considerations with financial ones. If they sell to only a few large bidders, they could be accused of favoring big institutions.
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