Tuesday, April 12, 2005

Wall Street "Bearish" On Mortgage Securities

It would be significant if mortgage backed securities lost favor with investors. You rarely hear anything negative said in financial circles regarding them. " U.S. mortgage-backed security spreads drifted wider on Monday as the ramifications of less market participation from Fannie Mae and Freddie Mac continued to set a bearish tone for the sector."

"'One thing is certain out of all that came out of last week's hearings, the backstop of the GSEs is going to decline significantly going forward,' a senior mortgage trader said."

"Wall Street firms are still bearish on the sector. 'Despite the recent underperformance, we are maintaining a modest underweight, favoring 30-year seasoned discounts and 15-year premiums,' JP Morgan said in research published Friday."

8 Comments:

At 8:25 AM, Blogger John Law said...

I didn't know wall street could be bearish on anything.

 
At 8:54 AM, Anonymous Anonymous said...

They won't get really bearish until the bonds start failing. Then they will get extremely bearish. I don't think people realize what they are buying when they buy real estate backed bonds.

I still don't understand the rate spread between a mortgage and the Fed rate.

http://online.wsj.com/article_email/0,,SB111308003469702771-IBjgYNnlaJ4mpytZYKHbqaEm4,00.html

The Fed keeps raising its rates and the 10 and 30 year rates don't move. And yet the market is getting more and more risky as the bad data piles up. Somethings gotta give !

 
At 9:04 AM, Blogger John Law said...

MBS are becoming more dangerous so the IRs on those go higher.

 
At 9:11 AM, Anonymous Anonymous said...

I haven't seen any rate inceases on MB securities. I think CNN was heralding that the 30 year rate dropped below 6% again and the short terms had fallen back as well.

This is what I mean: the MBs are getting riskier as people use more leverage and house prices appreciate and yet the yields aren't rising significantly.

If the bubble bursts, MB securities are going to be like junk bonds were in 1987.

 
At 9:21 AM, Anonymous Anonymous said...

I haven't seen any rate inceases on MB securities. I think CNN was heralding that the 30 year rate dropped below 6% again and the short terms had fallen back as well.

This is what I mean: the MBs are getting riskier as people use more leverage and house prices appreciate and yet the yields aren't rising significantly.

If the bubble bursts, MB securities are going to be like junk bonds were in 1987.

 
At 9:25 AM, Anonymous Anonymous said...

In May 2004, the 30 year bond spread to Fed rate was 5+% (6+% - 1%). Now the spread is less than 3.25% (<6% - 2.75%).

If the spead had stayed constant, mortgage rates would be at 2.75% + 5+% = 8% ish.

This is in spite of the US having record trade deficits and the housing bubble being much better defined and knowing that Fannie Mae's portfolio is going to be adjusted.

What gives ?

 
At 9:26 AM, Anonymous Anonymous said...

That should be mortgage spread, not bond spread.

 
At 12:08 AM, Anonymous Anonymous said...

Wonder why ? The whole sector is junk.

 

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