De Beursvloer #93: Printed Dollars as green shoots

quote:

Op woensdag 27 mei 2009 21:51 schreef M.Melandri het volgende:

[..]

Ik ben ook negatief over Heijmans, maar short ga ik er ook nog niet op.

quote:

Op woensdag 27 mei 2009 22:05 schreef LXIV het volgende:
Ik wil ook niet shorten maar best wel op een goed moment instappen. Het EV is erg hoog en de verwachte winst in 2012 is 2 euro per aandeel. Als de kapitaalpositie door deze emissie nu substantieel verbeterd, de bouwmarkt weer aantrekt en je kunt ze met 40% korting kopen dan heb ik hier wel oren naar. Nu heb ik vooral BAM. Spreiden is verblijden.

quote:

Op woensdag 27 mei 2009 20:49 schreef SeLang het volgende:

[..]

Het gaat ook niet om het level van 3,7% dat we op dit moment hebben maar om het feit dat de rente explosief aan het stijgen is terwijl de FED honderden miljarden uitgeeft om die rente omlaag te brengen. De FED heeft dus geen control meer. Dat is nogal verontrustend als je bedenkt dat dat de hele markt omhoog wordt gehouden met bailouts en manipulaties door de FED.

quote:

Mortgage-Bond Yields Jump, Jeopardizing Fed’s Housing Effort

May 27 (Bloomberg) -- Yields on Fannie Mae and Freddie Mac mortgage bonds rose for a fourth day, after exceeding for the first time yesterday their levels before the Federal Reserve announced it would expand purchases to drive down loan rates.

Yields on Washington-based Fannie Mae’s current-coupon 30- year fixed-rate mortgage bonds climbed to 4.55 percent as of 3:15 p.m. in New York, the highest since Dec. 5 and up from 3.94 percent on May 20, data compiled by Bloomberg show.

Rising mortgage-bond yields, driven higher in part by climbing Treasury rates, means the Fed now “faces a challenge to its ability to sustain low mortgage rates,” according to Jeffrey Rosenberg at Bank of America Corp. The Fed, seeking to use lower home-loan rates to stem the housing slump and bolster consumers, said March 18 it would increase its planned purchases of so-called agency mortgage bonds by $750 billion, to as much as $1.25 trillion, and start buying government notes.

“Market participants may be asking themselves the same question as Scorpio in ‘Dirty Harry’: ‘Do I feel lucky?’ ” Rosenberg, the bank’s head of credit strategy research in New York, wrote in a report yesterday, referring to a character in the 1971 Clint Eastwood film who may be shot.

Crashing U.S. home prices have fueled the first global recession since World War II. The Fed, led by Chairman Ben S. Bernanke, may need to again adjust its mortgage-bond buying, after initially announcing the program in November, or boost its purchases of Treasuries, Rosenberg said. Home prices in 20 major metropolitan areas fell more than forecast in March, declining 18.7 percent from a year earlier, according to an S&P/Case Shiller index released yesterday.

‘Extension Pressures’

As rising Treasury yields sparked speculation that higher mortgage rates would extend the average lives of home-loan bonds by reducing the pace of refinancing, holders of the bonds, lenders and servicers began seeking to shorten the durations of holdings to make up for the effect, according to Mahesh Swaminathan, a mortgage-bond analyst in New York at Credit Suisse Group.

Their actions last week started causing interest-rate swap spreads to widen, as they sought to use those contracts to lessen their durations, “a canary in the coal mine pointing to the extension pressures building up,” Swaminathan said in a telephone interview.

Today, they are driving mortgage and government bonds lower, with the Treasury market, which “started the process, now sort of being taken for a ride,” exacerbating the situation, he said.

The average rate on a typical 30-year fixed mortgage was 4.82 percent in the week ended May 21, according to a survey by McLean, Virginia-based Freddie Mac. Rates are down from 6.46 percent in late October, and up from a record low of 4.78 percent in the first and last weeks of April.

Rising Yields

Yields on agency mortgage bonds are now guiding rates on almost all new U.S. home lending following the collapse of the non-agency market in 2007 and retreats by banks. The almost $5 trillion market includes securities guaranteed by government- controlled Fannie Mae and Freddie Mac and bonds of government- backed loans guaranteed by federal agency Ginnie Mae.

“Capacity constraints” at lenders dealing with increased mortgage applications since December have caused the rates offered to borrowers to be higher in relationship to the bonds yields than in the past, according to Bank of America and Credit Suisse analysts. That suggests loan rates may not initially rise as yields do.

Yields on benchmark 10-year Treasuries climbed to 3.72 percent today, a six-month high, from 2.54 percent on March 18 and a low this month of 3.09 percent on May 14.

Narrowing Spreads

Treasuries are slumping amid concern that record bond sales will overwhelm demand as U.S. bailout and stimulus spending stems deflation while adding to the nation’s debt burden, and as the economy shows signs of stabilizing.

The difference between yields on Fannie Mae’s current- coupon 30-year fixed-rate mortgage bonds and 10-year Treasuries narrowed to 0.92 percentage point today, from as high as 2.38 percentage points in March 2008, according to Bloomberg data. The Fed’s purchases drove the spread to 0.70 percentage point, the lowest since 1992, on May 22. The yield gap jumped from 0.71 percentage point yesterday.

“Many investors who felt MBS spreads were too tight thought it might be time to take chips off the table,” Credit Suisse’s Swaminathan said. “This is something we anticipated would build up” as many mortgage-bond holders who were previously wary of lightening their positions on the view the Fed buying would continue to support the market finally decided to act.

Rate Threshold

The so-called option-adjusted spread to interest-rate swaps yesterday was negative 0.16 percentage point, the lowest since March 2007 and a level suggesting an investor borrowing funds at the London interbank offered rate to buy the Fannie Mae mortgage securities would lose money, according to Bloomberg data. That spread reached as high as 1.06 percentage points in October, and jumped to positive 0.01 percentage point today.

Mortgage servicers also were dumping the securities because “once rates backed up, they needed to shed duration,” Art Frank, the head of mortgage-bond research at Deutsche Bank AG in New York, said in a telephone interview. “Today, the volume really came out because we crossed what apparently many of them thought was an important threshold” in terms of rates.

Servicers, who handle billing and collections, have contracts whose expected lives extend when the odds of refinancing drop.

Bloomberg current-coupon indexes represent the yields for hypothetical mortgage bonds trading at roughly face value. The levels are typically based on calculations derived from yields on the two groups trading just above and below par because of the size of their coupons, into which lenders typically package new loans.

A swap rate is the fixed yield paid in return for floating- rate payments linked to short-term interest rates, through a derivative contract called a swap. Swap spreads are the difference between those yields and Treasury rates.