TY - JOUR T1 - Linkages Between Secondary and Primary Markets for Mortgages JF - The Journal of Fixed Income SP - 29 LP - 36 DO - 10.3905/jfi.2001.319291 VL - 11 IS - 1 AU - Gloria González-Rivera Y1 - 2001/06/30 UR - https://pm-research.com/content/11/1/29.abstract N2 - The author analyzes the role of the retained portfolio investments of the government-sponsored enterprises, FNMA and FHLMC. The retained portfolio is shown to be a powerful instrument to influence yield spreads in the secondary and primary markets for mortgages. The long-run investment function links mortgage yields to the volume of their portfolio investments, guaranteeing that the spread cannot diverge indefinitely. A one basis point increase in the spread is estimated to produce an infusion of $554 million in the secondary market. When there is a deviation from long-run equilibrium investment levels, short- run dynamics (changes in purchases and spread) are set in motion to correct the disequilibrium. These benefits are passed directly to the homeowner. There is a one-to-one transmission mechanism; a reduction of one 1 bp in the secondary market spread reduces the primary market spread by 1 bp, rendering these markets efficient. ER -