By Agnes T. Crane
The author is a Reuters Breakingviews columnist. The opinions expressed are her own.

The U.S. Treasury will lead the way testing the $4.6 trillion mortgage-backed securities market’s mettle. Tim Geithner’s department said on Monday that it will begin offloading $142 billion of mortgage bonds accumulated during the financial crisis. The gradual sale of Treasury’s portfolio could hint at how markets will react when the Federal Reserve comes to sell its nearly $1 trillion stash.

Anyone who had forgotten about the Treasury’s holdings can be forgiven. MBS instruments guaranteed by government agencies Fannie Mae and Freddie Mac were acquired in the name of market stability after their regulator seized the two housing giants in 2008. But the overall crisis at the time and the Fed’s huge intervention are the things that stick in the memory.

The combined purchases had the desired stabilizing effect. Risk premiums on mortgage bonds have tumbled to less than half where they were before Treasury and the Fed started buying in 2008, according to Credit Suisse — with the knock-on effect of keeping mortgages cheap. That hasn’t, however, done much for the broader housing market. Data released on Monday showed the price of existing homes declining and the pace of sales falling nearly 10 percent between January and February. This makes the government’s withdrawal a sensitive matter.

It’s helpful, therefore, that Treasury is testing the water. Its holdings are only about 3 percent of all agency MBS outstanding, so it’s unlikely the sales, set for $10 billion a month starting right away, will cause mortgage rates to climb significantly. And if they do, it’s better to know it before the Fed fires up its own exit strategy — something that’s likely to move more than just the  bond market.

The Fed doesn’t seem to be in any hurry to start selling. The run-off of maturing mortgage bonds has helped trim its portfolio, and the U.S. central bank is still buying Treasuries. Should Treasury’s sales go off with little or no market impact, though, it should encourage the Fed to consider selling its bonds sooner rather than later.