Yields Spread and Mortgage Rates Rise
Fannie, Freddie, and Ginnie mortgage bonds continue to pull away from US Treasuries.
The difference between yields on Washington-based Fannie’s current-coupon 30-year fixed-rate bonds and 10-year U.S. Treasuries rose about 21 basis points to 224 basis points as of 4:30 p.m. in New York, data compiled by Bloomberg show. That’s up from 162 basis points, or 1.62 percentage point, on Oct. 20.
“It is the deleveraging,” Mohamed El-Erian, the co-chief executive officer of Pacific Investment Management Co., said in a Bloomberg Television interview today from Newport Beach, California. “There are still people who absolutely have to liquidate, and that is keeping a number of the spreads in the high end of the markets much wider than they should be.”
This trend is mapping the confusion in the typically straight-forward mortgage debt market. Mortgage bonds normally run on a narrow spread to US Treasuries tracking the “explicit guarantee” of the US government. However, as this part of the debt market gets bigger–pulling in commercial banks and even corporate entities–higher yields with the same risk can be found elsewhere. Adding to the issue are central banks pulling out of mortgage bonds in favor of greater liquidity in lower yielding US treasuries.
Home Builders Throw in Their Housing Market Fix
Everyone is racing to hop onto the post-election, Democrat led, all you can eat taxpayer provided buffet:
Industry leaders will begin selling the plan, dubbed “fix housing first,” to lawmakers as soon as this week in the hope of having it tacked onto stimulus legislation Democrats are likely to push after the election.
Home builders say that legislation, which would likely include an extension of unemployment benefits and infrastructure spending, won’t pack any punch unless it contains measures to help the housing sector.
The home builders plan calls for generous $12,000-$20,000 tax credit on home purchases and a hefty Ginnie Mae (taxpayer) buy-down on mortgage rates from 6.25 percent to 2.99 percent.
Tiny Housing Movement on Tiny Housing Prices
Surprising rise in new home sales had everyone jumping for the bottom. Careful it may be a larger leap than you think.
Soros on the Denmark Mortgage Market for the US-Thoughts?
I would love to hear opinions on this one: Denmark Offers a Model Mortgage Market.
Here is the thesis:
To reconstruct our mortgage system on a sounder basis, we ought to look to the Danish model, which has withstood many tests since it was brought into existence after the great fire of Copenhagen in 1795. It remains the best performing in Europe during the current crisis. First, it is an open system in which all mortgage originators can participate on equal terms as long as they meet the rigorous regulatory requirements. There are no GSEs enjoying a quasimonopolistic position.
$700 Billion Taxpayer Bailout Tracker
Just in case you are curious:
- JP Morgan Chase: $25 Billion-Strategic acquisitions (oops, did I say that out loud)
- Morgan Stanley: $23 Billion-Prop up run on money market funds
- PNC: $7.7 Billion-Strategic acquisitions
- Taxpayer: ($700 Billion)-More foreclosures
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I am Bill Rice the Managing Editor of MortgageLoan.com. These are my morning notes. If you have comments, feedback, or pointers to something interesting email me or follow me on Twitter.
(photo credit: BlownMortgage.com)
About Bill Rice