The Federal Reserve held $1.9307 trillion of mortgage-backed securities in the week ended August 19, 2026, the smallest mortgage portfolio the central bank has carried since July 2020. The figure comes from the H.4.1 balance sheet statement the Fed published on August 20, and it sits $809.5 billion below the portfolio peak of $2.7402 trillion reached on April 13, 2022. None of that decline came from selling. The Fed has never sold a mortgage bond out of the System Open Market Account. The shrinkage is a redirection instead: the implementation note the Federal Open Market Committee issued on July 29 orders the New York Fed trading desk to “reinvest all principal payments from the Federal Reserve’s holdings of agency securities into Treasury bills.” Every dollar of mortgage principal that pays off leaves housing finance and lands in the bill market. That single instruction is quietly rebuilding the composition of a $6.7457 trillion balance sheet, and it matters to anyone pricing a home loan, because a shrinking official bid for mortgage paper is one of the forces sitting underneath today’s mortgage rates.
Key Takeaways
- Fed mortgage bond holdings fell to $1.9307 trillion in the week ended August 19, the lowest since July 2020.
- The portfolio now sits $809.5 billion below its April 2022 peak of $2.7402 trillion.
- The FOMC directs the desk to reinvest all agency principal into Treasury bills, so the mortgage book shrinks monthly.
- Fed Treasury holdings climbed to $4.5422 trillion, up $353.5 billion since early December 2025.
- Freddie Mac put the 30-year fixed mortgage at 6.65% on August 20. Prime holds at 6.75%.
Table of Contents
What the Balance Sheet Shows
The H.4.1 release, formally titled Factors Affecting Reserve Balances of Depository Institutions, is the weekly ledger of everything the Federal Reserve owns and owes. In the August 20 edition, covering the week ended August 19, mortgage-backed securities held outright printed at $1,930,728 million. The last week the line stood at or below that level was July 8, 2020, when it read $1,911,401 million. Over the past 52 weeks the portfolio has fallen $186.0 billion, and it is down $108.3 billion since the final week of 2025 alone. Measured against the April 2022 high, the book has given back 29.5% of its size.
The other side of the ledger moved the opposite way. Treasury securities held outright rose to $4.5422 trillion, up $353.5 billion from the December 3, 2025 low of $4.1887 trillion and up $340.3 billion from a year earlier. Total assets finished the week at $6.7457 trillion, well under the $8.9655 trillion peak of April 2022 but roughly $210 billion above the December 2025 trough. Reserve balances stood at $2.9353 trillion, and the overnight reverse repurchase facility, once a parking lot for more than $2 trillion of cash, took in nothing at all on August 24.
Why the Mortgage Book Keeps Shrinking
The mechanism is written into the FOMC directive, not left to discretion. Effective July 30, 2026, the Committee instructed the desk to roll over at auction all principal payments from its Treasury holdings, and to reinvest all principal payments from its agency holdings into Treasury bills. Mortgage bonds pay down continuously as homeowners refinance, sell, or simply make scheduled payments. Under the current directive none of that cash goes back into new mortgage bonds. It is converted into short Treasury paper. The result is a portfolio that erodes on its own schedule, faster when refinancing picks up and slower when it stalls.
The same directive tells the desk to increase System Open Market Account holdings “through purchases of Treasury bills and, if needed, other Treasury securities with remaining maturities of 3 years or less to maintain an ample level of reserves.” That is why the Treasury line is growing while the mortgage line falls. The July 29 statement, approved by a 9 to 3 vote with Beth M. Hammack, Neel Kashkari and Lorie K. Logan preferring a quarter-point increase, described the stance plainly: the Committee is “continuing its policy of maintaining ample reserves in the banking system.” Mortgage bonds carried a 28.6% share of total assets in August, down from 30.6% at the 2022 peak. Agency debt, a separate and much smaller line, is nearly extinguished at $2.347 billion.
What It Means for Mortgage Rates
Mortgage rates are priced off the 10-year Treasury yield plus a spread that compensates investors for prepayment risk and for the cost of holding the paper. Freddie Mac reported the 30-year fixed average at 6.65% on August 20, with the 15-year at 5.95%. The 10-year Treasury closed that day at 4.69%, which puts the spread at 1.96 percentage points. The average spread since 1990 is 1.77 points, and the 2000 through 2019 average is 1.76. Borrowers are paying roughly 20 basis points more over Treasuries than the long-run norm, and a buyer who disappears from the market every month is part of the reason that gap has not closed.
The effect should not be overstated. Private investors, banks and money managers absorbed the $809.5 billion the Fed has let run off since 2022 without the mortgage market seizing, and the spread has traded between 1.83 and 2.15 points during 2026 on weekly readings. The larger driver of the 6.65% headline is the Treasury curve itself. The yield curve steepened again into last weekend, with the 10-year at 4.74% and the 30-year at 5.27% on August 21, while the 2-year sat at 4.24%. Long yields, not Fed mortgage sales, are doing most of the work.
What Changes for Your Money
Nothing in the H.4.1 release moves the prime rate, which the Fed listed at 6.75% in the H.15 statement dated August 24 and which has not moved since December 2025. Prime tracks the federal funds target, and the effective funds rate held at 3.63% through August 21. Credit card APRs, home equity lines and variable-rate personal loans take their cue from prime, so those payments are unchanged this week regardless of what the mortgage portfolio does.
The balance sheet matters on the other side of the household ledger. A Fed that keeps buying Treasury bills is a steady buyer at the short end, which helps anchor the yields that set savings account and certificate of deposit pricing. The 13-week bill auctioned at 3.715% and the 26-week at 3.790% on August 24, both comfortably above the 3.63% funds rate. Meanwhile Treasury keeps issuing into that bid. This week alone brings $69 billion of 2-year notes on August 25, $70 billion of 5-year notes plus a $28 billion reopening on August 26, and $44 billion of 7-year notes on August 27, against a national debt that closed at $40.033 trillion on August 21.
Pro Tip
If you are shopping a mortgage, quote the spread, not just the rate. Ask two lenders what they are charging over the 10-year Treasury, then check the 10-year yourself before you lock. A quote at 1.75 points over Treasuries is competitive right now. A quote at 2.20 is not, and that difference is worth about $95 a month on a $400,000 loan. Rate sheets move with the Treasury market every morning, so a lock taken on a strong bond day can save more than weeks of shopping.
Frequently Asked Questions
How much in mortgage bonds does the Federal Reserve still hold?
The Federal Reserve held $1.9307 trillion of mortgage-backed securities in the week ended August 19, 2026, according to the H.4.1 balance sheet released August 20. That is the lowest reading since July 2020 and $809.5 billion below the April 2022 peak of $2.7402 trillion.
Why would the Fed buy MBS?
The Fed bought mortgage bonds to push down long-term borrowing costs when the federal funds rate was already near zero and could not be cut further. Large-scale purchases of agency mortgage paper lifted prices and lowered yields across the mortgage market, which fed through to the 30-year fixed rate quoted to homebuyers. The Fed used the tool in the 2008 crisis and again in 2020, and it is not buying new mortgage bonds today.
How many mortgage-backed securities did the Fed buy?
The portfolio peaked at $2.7402 trillion on April 13, 2022, after two years of pandemic-era purchases. At that point mortgage bonds made up 30.6% of the Fed’s $8.9655 trillion in total assets. The holdings have fallen every year since, and the August 19, 2026 reading of $1.9307 trillion represents a 29.5% reduction from that high.
Who are the largest holders of mortgage-backed securities?
The Federal Reserve remains one of the single largest holders of agency mortgage bonds at $1.9307 trillion, but it is no longer adding to the position. Commercial banks, insurance companies, pension funds, mutual funds and foreign official institutions hold the rest. As the Fed steps back, those private buyers absorb the supply, and the price they demand shows up in the mortgage rate spread.
Does the Fed’s mortgage runoff push my mortgage rate higher?
It contributes, but it is not the main driver. The spread between the 30-year fixed mortgage and the 10-year Treasury was 1.96 percentage points on August 20 against a 1.77-point average since 1990, so roughly 20 basis points of extra cost. The bigger factor is the level of Treasury yields themselves, with the 10-year at 4.74% and the 30-year at 5.27% on August 21.
What should I watch before the September Fed meeting?
The FOMC next meets September 15 and 16, and that meeting carries a Summary of Economic Projections. Three officials already dissented in favor of a quarter-point increase in July. Watch the weekly H.4.1 for whether Treasury purchases keep outpacing mortgage runoff, watch the 10-year yield because your mortgage quote follows it, and watch prime, which stays at 6.75% until the funds target moves.
Watching the September Fed Meeting
The mortgage portfolio will keep draining as long as the current directive stands, and the next checkpoint is the September 15 and 16 FOMC meeting, listed on the Fed meeting schedule. Any change to the reinvestment language would show up in the implementation note that afternoon and in the balance sheet data within weeks. Until then the arithmetic is simple. Mortgage bonds run off, Treasury bills replace them, and the path from Fed policy to your mortgage rate runs through the spread rather than through prime.
References
- Federal Reserve Board. H.4.1, Factors Affecting Reserve Balances, released August 20, 2026. https://www.federalreserve.gov/releases/h41/current/
- Federal Reserve Board. FOMC statement, July 29, 2026. https://www.federalreserve.gov/newsevents/pressreleases/monetary20260729a.htm
- Federal Reserve Board. Implementation Note, July 29, 2026. https://www.federalreserve.gov/newsevents/pressreleases/monetary20260729a1.htm
- Federal Reserve Board. H.15, Selected Interest Rates, August 24, 2026. https://www.federalreserve.gov/releases/h15/
- Federal Reserve Board. FOMC meeting calendar, 2026. https://www.federalreserve.gov/monetarypolicy/fomccalendars.htm
- FRED. Mortgage-Backed Securities Held Outright, series WSHOMCB. https://fred.stlouisfed.org/series/WSHOMCB
- FRED. Treasury Securities Held Outright, series WSHOTSL. https://fred.stlouisfed.org/series/WSHOTSL
- FRED. 30-Year Fixed Rate Mortgage Average, series MORTGAGE30US. https://fred.stlouisfed.org/series/MORTGAGE30US
- Treasury Fiscal Data. Debt to the Penny. https://fiscaldata.treasury.gov/datasets/debt-to-the-penny/
- TreasuryDirect. Auction announcements, data and results. https://www.treasurydirect.gov/auctions/announcements-data-results/
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