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Tyler Durden's picture

At 5.21%, Freddie Mac 30 Year Fixed Rate Mortgage Jumps To Highest Since August





Yesterday we reported that the MBA announced the highest average 30 year FRM rate since August: a jump from 5.04% to 5.31%. Today this deterioration in mortgage rates was confirmed by Freddie Mac, whose 30 year Fixed Rate Mortgage jumped from 5.08% to 5.21%. Whether this is a function of the recent surge in 10 Year yields (subsequently ameliorated by Chinese purchases during yesterday's auction) or of the end of QE finally being felt is uncertain, although it is probably a combination of the two. This implies a loss in household net worth of billions of dollars in just one week. Of course, that is money that was already spent to bring you last month's fantastic retail store data, which was driven purely by everyone doing the moral hazard jingle, and refusing to pay for anything already purchased. Wholesale government justified theft is now a way of life in America, but it's cool - the banks on the hook for these billions in losses will keep getting back door bailouts in perpetuity.

 
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MBA Announces Average 30 Year Fixed Rate Mortgage Surges From 5.04% To 5.31%: Highest Since August 2009





A few days ago we demonstrated the spike in Freddie 30 Year Fixed Rate Mortgages which hit a near 2010 high of 5.08 after being as low as 4.93% a few weeks prior. We speculated that the end of QE is starting to be felt much earlier than anticipated. Today's release of the Mortgage Brokers' Association of the Weekly Application Survey confirms this: the MBA discloses that the average contract interest rate for the 30 Year Fixed Rate Mortgage has surged from 5.04% to 5.31% - the highest 30-year rate recorded in the survey since August of 2009. Discussing this event, the MBA said:"“Mortgage rates jumped last week as the Federal Reserve completed their
purchases of mortgage-backed securities. Refinance application
volume dropped as mortgage rates reached their highest level since
August 2009." With rates surging on the back of the recently breach of 4% in 10 year rates, this has pretty much made sure the Fed will soon need to get involved again. A 1% rise in mortgage rates is equivalent to a loss of a few hundred billion in household net worth. Just as the bond vigilantes are calling Greece's bluff (and winning soundly) so the mortgage vigilantes are stirring.

 
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Freddie Fixed Mortgage Rate Rises For Third Week In A Row, At 2010 High: End Of QE Starting To Be Felt





The Freddie 30 Year FRM just posted its 3rd weekly increase, jumping from 4.99% to 5.08%, which is just 1 basis point below the 2010 high recorded in the first week of the year. The end of QE may not have dented stocks much, but it is sure starting to be felt in the mortgage arena. It is only a matter of time before rising mortgage rates halt additional home refinancing activity, and force homeowners to take more drastic measures, such as those prescribed by the national and enforced doctrine of Moral Hazard. It is only a matter of time before the shorts in the MBS market find their bearings again and instead of covering existing positions, press new ones.

 
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Fixed Income Trade Recommendation





Following our focus yesterday on key supports in Fixed income, we feel that the risk is that on a rally here the curve could flatten. Indeed 2Y yields even though they rose recently, remain very low, and we feel that if the next leg is up in fixed income then the long end should outperform. We have attached a chart of 2/10 for US treasuries, as can be seen we just retested the 50-dma. - Nic Lenoir

 
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US Fixed Income Update





As indicated this morning, the market is getting pretty close to some key support levels in Fixed Income. We first highlight the 30Y future support we tested today at 114-26. If we bypass this level we have potential to sell off down to 111-24 which is the next key support, and would trigger a massive bond bear market if actually triggered. But we should expect a bounce here.

 
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Fixed Income Update: Bunderful





As we have been discussing the Bund seems close to a medium term top to us. We tested the resistance of the daily channel Friday afternoon, the slow stochastic has now validated the break, and we have a potential H&S pattern in progress here, with the top of the second shoulder around 123.50/60. We would be sellers here, adding to shorts if we break on a break of 123/122.95.

 
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The LBO Refi Wave Approaches: $800 Billion In Junk Debt Maturing By 2014, Adds To Multi Trillion Fixed Income Refi Cliff





After a mere $100 billion in projected debt maturities in the 2010-2011 period, the LBO wave of 2005-2007, largely financed with 5-7 year tenor bonds and loans, will set the refi scene on fire in the 2012-2014 period, when $700 billion of debt is set to mature. Should Fed Fund rates, and the yield curve begin to shift higher, the incremental cost of debt capital will destroy tens if not hundreds of billions of equity value over the next 5 years. After peaking at 19.4% in Q4, 2008, and subsequently dropping to 9.5%, Moody's expects HY bond yields to begin increasing in 2011. And while HY companies are rushing to access the current favorable HY refi window, when refi capital is still broadly available, growth capital has been extremely scarce with just 4% of last year's total HY issuance used for M&A activity (78% was for refinancing maturity extension). It would appear High Yield companies have entered "run-off" mode for credit investors, with no consideration for any residual equity value.

 
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BlueMountain Fund Unwind Marks Top Of "Easy Money" In Fixed Income





BlueMountain Capital, Stephen Siderow's fixed income fund, is liquidating one of its credit funds opened during the credit crisis, and returning capital to investors on the premise that the easy money has been made, and that the peak in the market is behind us. "We’ve captured most of the big opportunity,” BlueMountain co-founder Stephen Siderow, 42, said. “It isn’t going to happen again anytime soon and that’s why we urged our clients to move on.” Instead, Bloomberg reports, the fund is now urging clients to invest their money into other funds of the hedge fund, presumably the "less than bullish ones."

 
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Global Tactical Asset Allocation - Fixed Income





Yet more tactical allocation thoughts from Damien Cleusix, this time on the topic of Fixed Income.

 
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Citi Slams 2010 Fixed Income Earnings, Sees FICC Trading Down 15-25% In 2010, Cuts EPS Estimates





A note released earlier by Citi analyst Keith Horowitz continues Citi's attempts at whacking the prevailing dogma, after the firm's recent downgrade of AA. Horowitz' primary conclusion: "Based on our analysis of the five main revenue pools, we see 2010 FICC revenues down 15-20% y/y – or closer to a 1H07 run-rate." As a result, Citi cut its EPS estimates for MS by $0.30 to $0.36, for GS by $0.25 to $5.25, form JPM by $0.15 to $0.55 and left BAC unchanged at a loss of ($0.66).

 
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Freddie 30 Year Fixed At 5.14%, 4 Month High, As 30 Year-1 Year ARM Spread Hits Another Absolute Record





A week ago Zero Hedge discussed the spread between the Freddie 1 Year ARM and the 30 Year fixed, concluding that the recent record spread is indicative that the Fed will do all it can to become the new subprime lender of any resort, even if it means creating exponentially more roll risk, as it seeks to lend money regardless of the probability of ultimate payback. Today Bloomberg points out that the Freddie 30 Year has just hit a 4 month high of 5.14%, a level last seen at the end of August. What is notable is that in less than two weeks the 30 Year Freddie Fixed has jumped by 20 bps. At this rate we will overtake the 2009 high of 5.59% within a month. However, our original observation is that even as the 30 Year Fixed has finally started to move in line with the 10 Year Treasury, which just can't find a floor in the past week, the 30 Year Fixed - 1 Year ARM spread has simply exploded: when we looked at its last it was 60 bps, a week later, it is now at 81 bps. The Fed is now literally throwing money away in the form of Adjustable Rate Mortgages.

 
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Brace For Impact: In 2010, Demand For US Fixed Income Has To Increase Elevenfold... Or Else





Here is the only math you need to know as we all look at 2010: in 2009 US Dollar denominated fixed income supply, net of the Fed's Quantitative Easing operations, was $190 billion. In 2010 it will be $2,060 billion, an eleven fold increase. The Fed has three choices: 1) a QE 2 announcement soon, causing a plunge in already low Democrat popularity ahead of the mid-term elections; 2) interest rates skyrocketing, throwing the economy into a true tailspin; 3) the mother of all engineered equity crashes to return capital flow to risk-free assets. None of the three is a pleasant choice, however the Fed could only delay the inevitable hangover from the biggest private-to-public risk transfer in history for so long.

 
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Fixed Income Update: More Supply





We have a lot of fresh Treasury supply coming in this week. The last 30-Y auction put an end to a series off auctions that were coming in better than expected. However, as we had warned before that last long bond auction, the expected yield below 4% had the potential to trigger some retaliation by real money investors. Sure enoguh the scenario played out and since then yield have backed up towards 4.30%. Also as pointed out last week 3.50% on the 10Y is a relatively key psychological level.

 
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Brazil Joins Currency Intervention Brigade: To Tax Fixed Income, Stocks 2% To "Keep Real From Rising"





Developing story, but, surprisingly, not a dollar negative for once.

 
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Goldman's Co-Head Of Fixed Income Goes To Fidelity





It has been confirmed that Chris Sullivan, (curiously still with a green light on his Bloomberg profile) is taking the Ironclad parked in the dodecatuple secret bottom basement of 32 Old Slip, and will sail the East River all the way up to Boston where he will be joining Fidelity as president of its bond fund. Sullivan is moving on up in the world, not just in a purely magnetic north sense, as at Fidelity he will oversee more than $170 billion in bond assets.

 
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