The spread between mortgage rates and Treasury yields rose during the second half of the 1990s, peaked in late 2002 and 2003, and has declined since, implying that higher mortgage spreads are associated with higher GSE market shares.
Lehnert, Passmore, and Sherlund (forthcoming) find that a similar result obtains over shorter periods; using monthly data, they show that the mortgage spread appears to rise when GSE purchases rise and contract when GSE purchases contract. 2  BIS Review 22/2007  mortgages and other assets that they purchased and retained in their portfolios.