The Federal Reserve said Wall Street dealers saw increased demand to finance purchases of mortgage-backed securities and a rise in the risk appetite of hedge funds in the three months through February.
About 64 percent of dealers reported increased demand by their clients for funding of residential mortgage-backed securities, while 39 percent said funding requests for commercial mortgage securities rose, the central bank said today in its quarterly survey of senior credit officers. Two-fifths of dealers surveyed reported an increase for agency debt.
Since the beginning of this year, the risk that the dealers’ most-favored hedge funds are willing to take on has increased, according to 11 of 22 firms surveyed, the Fed said. About 32 percent of other hedge funds have increased their risk exposure, according to the survey from Feb. 19 until March 4.
Thirteen of 22 dealers said the amount of resources and attention they are devoting to manage their exposure to central counterparties or other financial utilities has “increased considerably” or “increased somewhat,” the survey showed. The U.S. Dodd-Frank Act began requiring dealers, major swaps users and other active funds to use central counterparties, or clearinghouses, to process swaps trades since March 11.
The survey asked dealers about client demand to finance commercial real estate loans that will be securitized. About 55 percent of dealers said that demand has increased from the middle of 2012. Client demand to finance syndicated bank loans under the same process rose about 58 percent, The Fed said.