Fed says agency market shrinks to $7.58 trillion in second quarter

By Angela McDaniels

Tacoma, Wash., June 9 - The total amount of outstanding securities backed by agencies and government-sponsored enterprises decreased to $7.58 trillion at the end of the second quarter from $7.65 trillion at the end of the first quarter, according to the Z.1 flow and outstandings report released by the Federal Reserve on Friday.

Of the $7.58 trillion outstanding at quarter-end, the majority - $6.32 trillion - was issued by GSEs.

On the buyside, U.S.-chartered commercial banks held the greatest amount of agencies, $1.34 trillion, followed by what the report termed the "rest of the world" with $1.03 trillion, the Federal Reserve with $1.026 trillion, mutual funds with $820.6 billion and state and local governments with $428.9 billion.

From the first quarter to the second quarter, the amount of securities held increased for mutual funds (up 1.0%) and was essentially flat for U.S.-chartered commercial banks (down 0.1%). It decreased for the Fed (down 4.1%), the rest of the world (down 2.4%) and state and local governments (down 1.5%).

Flows down by $333.3 billion

On a seasonally adjusted annualized and net basis, total liabilities in the agencies market declined by $333.3 billion during the second quarter of 2011, according to the report.

In the first quarter, net liabilities increased by $276.0 billion.

In 2010, net liabilities increased during the first quarter and then fell in each of the remaining quarters.

The $333.3 billion second-quarter decrease was driven by a $479.9 billion decrease for GSEs.

In comparison, net liabilities increased by $826.2 billion for Treasuries, decreased by $86.9 billion for municipals and decreased by $11.1 billion for corporate and foreign bonds in the second quarter on a seasonally adjusted annual basis.

On the buyside, mutual funds increased their holdings of agencies by a net $108.7 billion during the second quarter on a seasonally adjusted annual basis. Real estate investment trusts posted an increase of $104.8 billion, and brokers and dealers increased their holdings by $85.9 billion.

Notching large declines in their agency holdings were the Fed (negative $176.4 billion), the federal government (negative $139.1 billion), the household sector (negative $122.6 billion) and the rest of the world (negative $100 billion).

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