Trading Desk Talk

If I had $200 billion dollars

Ed Robertson, from Canadian band Barenaked Ladies, sang “If I had a million dollars, well, I’d buy you a house.” President Trump, like Robertson, wants to support the housing market—though on a far bigger scale. In a surprise announcement, Trump wrote on social media: “I am instructing my Representatives to BUY $200 BILLION DOLLARS IN MORTGAGE BONDS. This will drive Mortgage Rates DOWN, monthly payments DOWN, and make the cost of owning a home more affordable.”

The post came late Thursday, just before markets closed. But it allowed enough time for some frenzied action from investors. Current coupon agency mortgage spreads tightened dramatically heading into Thursday’s close and remained well bid on Friday. For example, the yield difference between the generic, 30-year, single family mortgage coupon and a 50/50 blend of five- and 10-year Treasury notes tightened by roughly 11 basis points (bps) late Thursday and again by an additional 10 bps by Friday’s close (Figure 1).

Government sponsored enterprise (GSE) buying isn’t a new phenomenon. Indeed, holdings by Fannie Mae and Freddie Mac eight years ago were nearly double today’s amounts. Yet according to Bloomberg Intelligence, GSEs holdings are on the rise—a trend for much of 2025 that now seems poised to increase dramatically. The increased holdings would certainly be a tailwind for our market and would provide a strong, immediate counterpunch to ongoing Federal Reserve quantitative tightening that has allowed up to $35 billion per month of mortgage-backed securities (MBS) to run off the central bank’s balance sheet since May 2022. Recent monthly MBS reductions have been in the $14 to $18 billion range (Figure 2).

While the lack of MBS reinvestment from the Fed removed a historically relevant buyer, the central bank is being replaced by the GSEs, which muddies the water for spread movement. The projected $15 billion/month Fed balance sheet runoff ought to be somewhat offset by new GSE investment—although it’s too early to determine the pace of GSE buying. If, for example, the GSEs purchased MBS at roughly the same pace as the projected Fed balance sheet runoff, the announced $200 billion mandate would end in about 13 months. (In Figure 3, the Fed’s MBS holdings are shown in green.)

I go back

Country music superstar Kenny Chesney sang, “We all have a song that somehow stamped our lives, takes us to another place and time,” in his hit, “I go back.” While the song goes back to high school glory days, the U.S. has gone back to the early 1800s. History buffs rejoice: Trump’s invocation of the 19th century Monroe Doctrine has become the topic of discussion as we turn towards 2026.

The Monroe Doctrine, declared by President James Monroe in 1823, asserted that the Western Hemisphere was no longer open to European colonization and that any attempt by European powers to interfere in the affairs of independent nations in the Americas would be viewed as a hostile act against the U.S. In return, the U.S. pledged not to involve itself in European wars. Today, Trump’s argument for taking control of Greenland is that it is (1) vital for U.S. national security, and (2) Denmark is not spending enough to protect Greenland from increased Chinese and Russian engagement in the Arctic (Figure 4). Likewise, the U.S. raid in Venezuela, which led to the capture of the country’s leader, Nicolas Maduro, on drug-trafficking charges, was influenced by a desire to reassert American dominance in Latin America, among other factors.

A little background. Greenland is a Danish territory that enjoys “self-rule;” the local government controls most domestic issues, while Copenhagen oversees the island’s security. Greenland is also home to the northernmost U.S air base and radar station that is used to detect missile threats and monitor space.

In recent years, the melting of polar ice sheets has opened previously inaccessible trade routes and natural resources. The Great Powers have taken note. “The United States is the power of NATO,” thundered Trump advisor Stephen Miller on CNN last week. “For the United States to secure the Arctic region to protect and defend NATO and NATO interests, Greenland should be part of the United States. … The real question is by what right does Denmark assert control over Greenland?”

Seizing Greenland would, of course, pit America against other NATO allies. “The use of force would be hugely threatening to the alliance, and it would come in addition to existing concerns over U.S. commitment to the alliance,” observed Ian Lesser, a researcher at the German Marshall Fund specializing in U.S. and transatlantic security policy. In the event of a U.S. attack, explained Lesser, Denmark would surely be forced to turn to its European counterparts for support; these countries would then need to weigh their desire to defend Greenland’s sovereignty against their desire to stay in Trump’s good graces. “If the U.S. chooses to attack another NATO country militarily, then everything stops, including NATO, and thus the security [framework] that has been established since the end of the Second World War,” warned Danish Prime Minister Mette Frederiksen.

For those who hope to avoid such a calamity, the good news is that Greenland is, obviously, not Venezuela. First, Greenland and the U.S. are already partners in collective defense; in fact, America once maintained a far larger military footprint on the island during the Cold War era with more than a dozen military installations, before scaling back its presence over the decades. Second, Washington has long seen Venezuela as an adversary and did not recognize Maduro as Venezuela’s legitimate leader. Trump, meanwhile, has not claimed that Greenland (or Denmark) threaten U.S. security. Third, Frederiksen said that she is open to allowing the U.S. to boost its military presence in Greenland. (Under existing treaties, Washington has the right to do so, as long as it consults with both Denmark and Greenland.)

A little more background. In addition to conquering territory, the U.S. has a long history of purchasing it, too. Perhaps most famously, President Thomas Jefferson bought the “Louisianna territory” from Napoleon in 1803. Alaska was purchased from Russia in 1867. The Danish Virgin Islands—now the U.S. Virgin Islands— were acquired from Denmark in 1917.

According to the Observatory of Economic Complexity, a trade database, Greenland currently imports only about $6 million from America and exports $28 million. Greenland, more broadly, is responsible for about 80% of the global fish, crustaceans, and mollusks export market (which also accounts for approximately 80% of the island’s total exports of $1.66 billion). The most common destinations for Greenland’s exports are Denmark ($830 million), China ($380 million), U.K. ($89 million), Japan ($79 million) and Germany ($49 million).

So how have financial participants responded to the aforementioned risks? With a big yawn: Both U.S. and Danish 10-year government yields have remained calm (Figure 5).

Similarly, the MOVE Index (a measure of U.S. bond market volatility) remains low, as does the VIX Index (which measures volatility in the S&P 500). Corporate bond spreads—both for investment grade and high yield—remain unbothered, too. And measures of financial stress from the St. Louis Fed and the Office of Financial Research indicate low levels of fracture as well (Figure 6).

Thus, the takeaway from the first trading week of the new year is that we are likely in for another jarring political landscape in 2026. The silver lining: Because financial markets have grown accustomed to this flavor of macro volatility, the backlash from a pricing perspective seems to be more muted than in the past. As a result, the Denmark and Venezuela moves were met with a shrug from U.S. financial markets, while the announcement of a targeted $200 billion MBS purchase directive was met with an immediate and sizeable 20 bps spread reduction in just 25 hours of trading.

Investors, in other words, seem squarely focused on the economic and market fundamentals, which ought to be clearer as the fog from the 2025 government shutdown dissipates (and assuming we don’t get another long shutdown in 2026). To that point, last week’s jobless claims came in below expectations and below levels seen through nearly all of 2025. Nonfarm payrolls were slightly disappointing but were nevertheless in line with expectations. And the unemployment rate ticked down marginally. The bottom line: Today’s political headlines provide high drama, but the macroeconomic landscape does not—for now.

FROM THE DESK

Agency CMBS — Our market was creeping tighter heading into the week’s end—and then it drastically tightened following Trump’s directive for GSEs to purchase $200 billion of mortgages. Although no further details of the purchase program were made available, Fannie Mae and Ginnie Mae spreads broadly tightened by about 10 bps on Friday.

Municipals — AAA tax-exempt yields were lower throughout the yield curve, week over week. The first full week of trading for 2026 was relatively quiet, with no health care or multifamily deals pricing. The municipal bond market hit record issuance for 2025 at nearly $580 billion. New issuance volume increased by almost 13% compared to 2024, which previously held the record for yearly issuance at $513 billion. Municipal bond funds had inflows of $1.5 billion last week, of which high yield funds claimed $291 million.

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