If refinancing activity declines, leading to a decrease in gross issuance, our purchases could exceed these levels. Of course, the pace of asset purchases is not strictly limited by the amount of new mortgage origination, as market participants can also deliver older securities into TBA contracts. As the pace of MBS issuance evolves, the Desk will continue to watch the market functioning indicators discussed above, with a particular emphasis on the market’s ability to settle further purchases. Conclusion Overall, I believe the Desk has effectively and efficiently carried out the FOMC’s directive to purchase additional Treasury securities and agency MBS in a transparent fashion that achieves the FOMC’s policy objectives, supports orderly market functioning, and obtains competitive market prices. I also believe that the Federal Reserve’s balance sheet policies have been effective in easing financial conditions, particularly with respect to making historically low borrowing costs available to existing and prospective American homeowners, as well as lowering interest rates to spur business investment and household spending. To achieve our policy mandate, we rely on your continued ongoing and active participation in our operations both for your own accounts and for the accounts of your customers, consistent with your role as primary dealers. We will continue to implement the FOMC’s  12  The Desk also purchases dollar roll contracts when implied financing rates are sufficiently positive. Such operations occurred in December 2011. 13  See TMPG Best Practices.
TMPG Best Practices encourage market participants who have amassed a particularly large position in the agency MBS market to manage that position mindful of the need to support market liquidity and to take care that sudden changes in trading strategies do not adversely impact liquidity or settlement.13 The Desk has consistently transacted in the dollar roll market when purchasing MBS to facilitate the orderly settlement of its purchases and will continue to do so as necessary to avoid deterioration in the liquidity of these contracts.14 So far, there seems to be little evidence that the current pace of purchases is straining the market’s ability to deliver securities to us. The current monthly pace is within the range seen during the Federal Reserve’s previous asset purchase programs, whether measured in par terms or when adjusted for duration risk. Treasury purchases make up only about 25 percent of monthly gross issuance of coupon securities, and current SOMA holdings are less than 20 percent of coupon Treasuries outstanding, although in some maturity sectors these percentages are significantly larger. The FOMC’s capacity to purchase MBS is somewhat more difficult to gauge, given the uncertainty around future mortgage origination discussed earlier. Since the beginning of the current purchase program in 2012, we have purchased nearly $ billion in MBS on average per month, including reinvestments. This translates into about 50 percent of monthly gross issuance, below the monthly purchase rate of roughly two-thirds during the first round of large-scale MBS purchases in 2009.