Last week, Ben Bernanke announced that the Federal Reserve would increase its holdings by adding open-ended purchases of $40 billion in mortgage debt. While the statement does clearly indicate that the Federal Reserve has concluded that the U.S. economy is not doing well on its own, the move quickly resulted in increased equity valuations.
In the past, each time that the Federal Reserve announced quantitative easing or an extension of its low rate policy, it has been beneficial to agency mortgage REITs. Generally speaking, this announcement should also be mostly beneficial for residential mortgage-backed securities and mREIT valuations, because the increased buying of RMBSs by the Federal Reserve should help support and even increase asset valuations.
The U.S. Treasury yield curve has steepened over the past three months. See a comparison of the present Treasury yield curve compared to the yield curve just last month.
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