Mortgages 28 bps Away From Being Safer Than Treasurys

Tyler Durden's picture


The open-ended awesomeness of Bernanke's bluster has crushed the spread between mortgages and Treasuries. While the spread had been tumbling in anticipation of Ben's great save, the move from yesterday's announcement is stunning as the already record-low levels have been halved leaving mortgages now under 28bps from being 'as safe as Treasuries'.

30Y mortgage spread to 10Y Treasury... more than halved from yesterday's announcement...


and now at record-er lows...


Chart: Bloomberg

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Fri, 09/14/2012 - 10:13 | 2794566 Debtonation
Debtonation's picture

Somehow paper being safer than paper doesn't make sense to me

Fri, 09/14/2012 - 10:15 | 2794575 GetZeeGold
GetZeeGold's picture



Hey....your paper is prettier than mine!!!

Fri, 09/14/2012 - 10:18 | 2794587 Biggvs
Biggvs's picture

Long motorized wheelbarrows.

Fri, 09/14/2012 - 10:31 | 2794653 TwoShortPlanks
TwoShortPlanks's picture

In 5 years time I'll be saying to myself, "I wish I'd bought just a bit more Gold"...coz this shit's gonna tourch in hell.

Fri, 09/14/2012 - 10:17 | 2794581 Aziz
Aziz's picture

Is flipping mortgage paper to the Fed balance sheet the kind of "productive investment" that Bernanke wanted to stimulate? 

Fri, 09/14/2012 - 12:25 | 2795425 greyghost
greyghost's picture

what ever happened to the days when the fed wanted to goose the economy they just started charging the banks interest on the money the banks held. these asshole are sitting on trillions and not lending it out.

Fri, 09/14/2012 - 10:21 | 2794607 LMAOLORI
LMAOLORI's picture



This is just another back door bail out for the banks does it make sense to you now?

Fri, 09/14/2012 - 10:29 | 2794644 eclectic syncretist
eclectic syncretist's picture

So does the Fed buy MBS according to mark to market accounting, or mark to fantasy accounting?  Is'nt this a very important question?


In other words, just how much debt forgiveness are they giving the banks with this round of BS?

Fri, 09/14/2012 - 11:08 | 2794937 LMAOLORI
LMAOLORI's picture



I don't know if it would even be possible to figure out. First keep in mind the Banks dumped trillions of dollars of bad housing debt onto the taxpayers via Fannie/Freddie. They were sued for a portion of those they only paid pennies on the dollar as a result of the suits. Now investor's are buying them back again for pennies on the dollar how would anyone ever be able to figure out how much was given away is beyond me. The article below is from July 2012

Subprime Rally Building as Dealers Sop Up Supply: Credit Markets


The rally in U.S. home-loan securities without government backing is accelerating as investors wager the housing bust is over and supply is sopped up by bond dealers emboldened by new capital rules.

Gains on subprime-mortgage bonds from 2005 through 2007, the years that produced the most defaults leading to the worst financial crisis since the Great Depression, have soared to 5.4 percent in July, bringing returns for the year through last week to 21.6 percent, according to Barclays Plc data. Securities backed by option adjustable-rate mortgages jumped over the past month by 7 percent to the highest level since May 2011.

Investors faced with benchmark interest rates at record lows are seeking mortgage securities after a 35 percent decline inhome prices from the peak in 2006. Wall Street banks are also adding to inventories after regulatory changes in June. As Citigroup Inc. warns prices may drop if dealers can’t place the holdings, daily trading volumes surged almost 40 percent last week, reaching the highest this year by one measure.

“There’s been a lot of investors waiting on the sidelines until home prices stabilize and now that they have, they’re moving in,” said Adam Yarnold, managing director of securitized products trading in New York at Barclays’s investment-banking arm. In addition, “the absolute low level of rates out there is driving institutional investors like pension funds to put money into anything with” returns that can top 7.5 percent and so- called non-agency securities offer that potential, he said.

Less Capital

The Federal Reserve and other regulators last month ended the use of credit ratings in calculations of how much capital Wall Street traders must hold against securitized debt. That’s allowing them to hold less for speculative-grade debt, helping the $1 trillion market manage greater sales.

Dealers added $3.5 billion of non-agency securities to their inventories last week, based onregulatory data. That compares with $4.5 billion for the rest of 2012 and sales of $18.1 billion in the final seven months of last year.

Fri, 09/14/2012 - 10:42 | 2794745 Debtonation
Debtonation's picture

You must be talking about the free profits that speculators make by front running the Fed.  Who would have thought.  Screw Main Street for the benefit of Wall Street.

Fri, 09/14/2012 - 10:30 | 2794637 whatsinaname
whatsinaname's picture

Bill Gross's fund did not make much .. was he fibbing about his MBS investments ? Or did he lose a boatload on treasuries nullifying his MBS profits ?

Fri, 09/14/2012 - 10:15 | 2794574 pendragon
pendragon's picture

free markets for free men

Fri, 09/14/2012 - 10:17 | 2794585 Waterfallsparkles
Waterfallsparkles's picture

I would think that lowering the interest rates would hurt the Banks as the higher rate loans will be paid off for lower interest rate loans.

Fri, 09/14/2012 - 11:01 | 2794896 KidHorn
KidHorn's picture

Agreed. Plus, I think banks will get out of the mortgage business. Not worth the risk when compared to buying t-bills. They'll originate, but won't hold any.

Fri, 09/14/2012 - 11:12 | 2794960 GoldenDragon
GoldenDragon's picture

They don't hold much of it now.  Remember they flipped all of those toxic assets to their "stupid" clients, which apparently includes the Fed.

Fri, 09/14/2012 - 11:09 | 2794942 GoldenDragon
GoldenDragon's picture

HI rates, low rates makes no matter to the banks, really.  They make money of the spread.

With ZIRP and IOER the banks make free money.

Fri, 09/14/2012 - 10:18 | 2794591 spastic_colon
spastic_colon's picture

Not until the maiden lane "investors" are made whole

Fri, 09/14/2012 - 10:18 | 2794593 Jim in MN
Jim in MN's picture

Indoor fireworks

Can still burn your fingers

Indoor fireworks

We thought were safe as houses

Fri, 09/14/2012 - 10:19 | 2794596 kito
kito's picture

Mortgages 28 bps Away From Being Safer Than Treasurys....


ha ha ha ha!!!! must be your friday humor post tyler!!!!

Fri, 09/14/2012 - 10:42 | 2794747 ghengis86
ghengis86's picture

Why shouldn't they be any less safe? Both are backed by the full faith and credit of Ben's printing press.

Fri, 09/14/2012 - 10:19 | 2794600 BrigstockBoy
BrigstockBoy's picture

Underwriting a thing of the past...

Fri, 09/14/2012 - 10:20 | 2794603 101 years and c...
101 years and counting's picture

the US has a 100% chance of default within 30 yrs.  not every american will default within 30.  so, why are treasuries "safer"???

Fri, 09/14/2012 - 10:20 | 2794606 fuu
fuu's picture

Just wait till the banksters figure out that the fed will buy more shit from them if the ranks of the unemployed continue to swell.

Fri, 09/14/2012 - 10:24 | 2794615 JohnKozac
JohnKozac's picture

Can we all start Flipping Houses again? it makes me feel so , mmm, so productive.


Fri, 09/14/2012 - 10:31 | 2794654 Spastica Rex
Spastica Rex's picture

"Flip That House" ads running on radio in my area. Motivated people should sign up a free workshop to learn how to make tons of money! Blah, blah, blah.

Fri, 09/14/2012 - 10:42 | 2794744 kito
kito's picture

there is a free workshop on starting a tbtf bank?????......................

Fri, 09/14/2012 - 10:39 | 2794719 LMAOLORI
LMAOLORI's picture



This isn't for you silly :) -  all over the web the news for a few months now has been about investors buying real estate for a song. They have even been trying to use Eminent Domain. For regular people unless you have cash the lending standards have really tightened even for people with excellent credit it is now really hard to get a loan. You might be able to rent one from them though. Sample..

Distressed Home Prices Jump With Inventory Shrinking


Illinois Foreclosures Surging Lure Investors: Mortgages

Eminent Domain Furor Hits Capitol Hill

Flashback who is this for...


A Huge Housing Bargain -- but Not for You


Fri, 09/14/2012 - 10:23 | 2794617 LongSoupLine
LongSoupLine's picture

Whew, good thing neither is in a bubble...I'm all for "safety"

Fri, 09/14/2012 - 10:24 | 2794621 docj
docj's picture

What could possibly go wrong?

Fri, 09/14/2012 - 10:26 | 2794623 adr
adr's picture

When I can refinance my house at 0% for 100 years I will. I'M COUNTING ON YOU BEN!!!!

I'm not really sure I'm seeing the goal here. I am supposed to refinance my home to free up money to buy shares of Apple. Then because Apple goes up I will feel richer and so will everyone else. The value of my home will go up so I can take out home equity loans to buy more shares of Apple. This will make me feel even richer so I will go out and buy more things made by Apple, which will cause the share price to go even higher, making me feel even richer again.

Is that right? I don't actually have to work anymore to make money? Nobody actually needs a job, we'll all just become rich investing in the stock market. Since we don't need to work, we have no reason to drive, other than to buy more Apple products. Oh wait, we can just buy everything from Amazon making them zero profit, but killing it on revenue. We don't actually need cars, so we can just invest in oil and don't need to care about how high the price goes, we can just revel in the glory of watching our holdings increase in value. God, now I know why those 5th Ave Penthouse dwellers kept on saying, "Don't complain about oil prices, invest in oil."


Fri, 09/14/2012 - 10:33 | 2794673 Spastica Rex
Spastica Rex's picture

I have a great idea for a SciFi novel: what happens in a crazy future where there's nothing left to do and little energy left to do it with?

Fri, 09/14/2012 - 10:26 | 2794626 Jason T
Jason T's picture

In the book "The Great Inflation" about the german hyperinflation, there is a chapter called "The madness of it all"  .. I need to re-read so I can know what to expect.  A lot of crazy shit I recall..  an end to thrift and hard work.  It was an abonimation to the human experience and brought out the worst in people... 

Fri, 09/14/2012 - 10:40 | 2794638 Cognitive Dissonance
Cognitive Dissonance's picture

"Mortgages 28 bps Away From Being Safer Than Treasurys"

Actually I trust the average Joe will pay his bills much more than I trust Uncle Sam to do the same.

Just sayin'

Fri, 09/14/2012 - 10:31 | 2794655 RazvanM
RazvanM's picture

Is this good or bad?

Fri, 09/14/2012 - 10:31 | 2794658 dwayne elizando
dwayne elizando's picture

Mortgages 28 bps Away From Being *More* Safer Than Treasurys

Fri, 09/14/2012 - 10:41 | 2794729 Doomer
Doomer's picture

I'm taking a ride
With my best friend
I hope he never lets me down again
He knows where he's taking me
Taking me where I want to be
I'm taking a ride
With my best friend

We're flying high
We're watching the world pass us by
Never want to come down
Never want to put my feet back down
On the ground

I'm taking a ride
With my best friend
I hope he never lets me down again
Promises me I'm as safe as houses
As long as I remember who's wearing the trousers
I hope he never lets me down again ...

- M. L. Gore (Depche Mode, "Never Let Me Down Again")

Fri, 09/14/2012 - 10:44 | 2794762 Spastica Rex
Fri, 09/14/2012 - 10:47 | 2794781 Dr. No
Dr. No's picture

To be honest, with $200T in outstanding obligation of the Federal government, MBS may be safer.

Fri, 09/14/2012 - 10:59 | 2794886 KidHorn
KidHorn's picture

I get what you're saying, but pretty much by definition, no debt denominated in USD is safer than a t-bill. t-bills will never default as long as they pay in USD.

Fri, 09/14/2012 - 10:46 | 2794782 vote_libertaria...
vote_libertarian_party's picture

And Benny won't say what price he is paying.


"Ok Mr. Banker.  You paid $99 for this MBS bond.  It is really worth $5 now because of all of the defaults.  You have buried it in level III assets for 3 years.  Ok, here is my offer.  I'll pay you $110 for it."

Fri, 09/14/2012 - 10:55 | 2794850 Snakeeyes
Snakeeyes's picture

I posted a similar chart yesterday. Fannie 30 Current coupon less 10 y Treas has fallen to to 59 basis points as well.

Fri, 09/14/2012 - 10:57 | 2794868 KidHorn
KidHorn's picture

Why would a bank ever loan you money for a quarter point more than a 10 yr t-bill? It's not worth the risk for the extra yield.

I guess all mortgages going forward will be from the gov't.

Fri, 09/14/2012 - 12:38 | 2795490 PoorMan429
PoorMan429's picture

They wont, the rate is based on credit risk. Go to a bank, see what the rate is. It will not be that low. Risk premium always gets tacked on to the published rates. 

Fri, 09/14/2012 - 11:00 | 2794888 pebblewriter
pebblewriter's picture

SPX just hit its Bat Pattern target at 1472.43.  This is the .886 retracement of the 1576 - 666 crash.  Could be really interesting...

Fri, 09/14/2012 - 11:35 | 2794921 Lost Wages
Lost Wages's picture

How do regular Treasury yields/prices effect TIPS? I have been watching some ETFs to see if TIPS benefit from this new QE (TIP, TIPZ, STPZ, LTPZ) as well as watching MBB to get a read on the MBS market. I don't see a lot of web sites that follow TIPS markets or MBS markets, so if you know of any let me know.

I have also been watching day-by-day the mutual fund DIPSX and trying to figure out how it correlates to market news, treasury rates, etc. It almost never does what I expect it to do and it is blowing my mind how equities are going up right now. Marc Faber keeps saying equities are better than bonds, and he is incredibly wealthy, but I'm not sure I believe him. Why do equities benefit more than the securities the Fed is actually purchasing?

Fri, 09/14/2012 - 12:07 | 2795325 Village Smithy
Village Smithy's picture

Liquidity my friend. While I do not subscribe to this theory billions in fast money is being pumped into equities in what I believe to be a dangerous assumption. That being  when something nasty happens they will just quickly liquidate positions. I say uh uh. I say selling tsunamii starts overnight in Asia and muppets get hung out to dry by insiders as everything stalls with limit downs and circuit breaker action. IMHO.

Fri, 09/14/2012 - 13:45 | 2795859 sbenard
sbenard's picture

If Bernanke's objective was to suppress interest rates, he failed! Rates are higher today that before his QE-INFINITY announcement!

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