The Federal Reserve currently owns $2.5 trillion in Treasury Bills/Notes and $1.7 trillion in agency Mortgage Backed Securities, and consequently has the potential to increase or decrease liquidity in these markets at will. In fact, the Fed owns about 30% of outstanding agency MBS making them the largest single holder of mortgage loans in the world. That could change relatively swiftly. With $600 billion of the $13 trillion in outstanding Treasuries, and $200 billion of the $6 trillion MBS trading on average each and every day, that ownership can change hands fast. Today the Fed is auctioning off $26 billion of 2-year notes, for example. The old adage “don’t fight the Fed” means that when the majority shareholder sells, many others jump on the bandwagon too. Mortgage pricing is down 15bps this morning ahead of the auction, and from the look of it the money is going into stocks. The DOW is currently up 210.