Why are we going wider?
* Servicers shedding duration - selling mortgages.
* Banks are not buying - limited balance sheet - concerned with retaining capital to cover losses/potential losses in other sectors.
* Dealers balance sheets are full - no where to go with product . However, mortgages are at 25 year wides so dealers don't want to be short them either.
* Heading into a quarter end.
* Money Managers and Hedge Funds - momentum trading - buying at the wides and selling at the tights - not taking a buy and hold position and therefore not taking production out of the market
* Market is trading very thin - the last trade determines direction of market.
* Asia generally buys on strength and no strength in the market - Asian bid has been noticeably absent - Asia typically is active at the end of the month, not at the beginning of the month so their absence this week is not a complete surprise.
* Other products still cheaper with AAA credit - Municipal Bond and certain classes of CMBS.
* GNMA/FNMA spreads continue to widen (5.0% spread is nearly 2 points) - flight to quality - investors seeking out full faith credit of the US government.
* Lower capital requirement to hold GNMAs vs conventional paper - banks prefer to own GNMAs right now.
* Some accounts experiencing margin calls on off the run collateral - can't sell off the run collateral because prices are too depressed. Therefore, selling agency MBS putting more pressure on the basis.
Market in general
* Inflation is high - oil is above 104
* Inflation eats away the value of fixed income - forces treasury prices lower.
* Surprising positive ISM non manufacturing number today - kicked off sell off.
Other things to consider
* Fed is poised to lower rates - possibly by 75bps.
* A fed cut should take the curve steeper which could lead to more ARM production.
* ARM market seems to be widening daily - REITs are fairly inactive, banks aren't buying.
* ARMs - no liquidity for out month - a number of secondary lists had to be pulled last week due to weaker than expected bids/participation - be aware of fading bids and defensive dealers.
Bottom line
* Investors are looking to put money to work in a safe asset that produces a good return and mortgages are not the answer right now.
Show All Comments
Sort:
Mortgage Force - Newtown, CT
Tough Times Never Last, Tough People Do
I think we should concentrate on the positive, and not let the media influence our business.
FHA raised limits, people are refinancing and buying their 1st home or a 2nd home.
Go get LOANS, don't wait for them to come to you. you can't make money from the office, so get out their and start networking .
Mar 07, 2008 01:04 AM
Comments(2)