Bonds 01 (May 08 - Aug 10)

Re: Bonds 1 (May 08 - Jun 10)

Postby millionairemind » Thu Jun 24, 2010 2:44 pm

Mortgage Bond Prices Rise to ‘Insane’ Records: Credit Markets
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By Jody Shenn

June 24 (Bloomberg) -- Mortgage securities with U.S.-backed guarantees are trading at record high prices on speculation homeowner refinancing will fail to accelerate and as supply of the bonds remains limited.

The average price of $5.2 trillion of bonds guaranteed by government-supported Fannie Mae and Freddie Mac or federal agency Ginnie Mae climbed to 106.3 cents on the dollar yesterday, according to Bank of America Merrill Lynch’s Mortgage Master Index. That’s up from 104.2 cents on March 31, when the Federal Reserve ended its program purchasing $1.25 trillion of the debt.


“It’s gotten insane,” said Scott Simon, the head of mortgage-backed securities at Newport Beach, California-based Pacific Investment Management Co., manager of the world’s biggest bond fund. “This is rarefied air.”

U.S. existing home sales unexpectedly fell last month and purchases of new houses tumbled to a record low, underscoring how borrowers’ ability to qualify for financing is limited even as rates drop. Bond prices show investors aren’t concerned homeowners will pay back the mortgages underlying the securities early, forcing them to reinvest in new debt at lower yields.

Applications for mortgage refinancings are off almost 57 percent from last year’s peak reached in January, according to the Mortgage Bankers Association. The average rate on a typical 30-year home loan fell to 4.75 percent last week, down from 5.3 percent in April, the group said June 22.

Tougher Underwriting

Refinancings are being suppressed because more than 23 percent of homeowners with mortgages owe more than their houses are worth, according to Seattle-based Zillow.com. Borrowers also face tougher underwriting standards at lenders selling debt to Fannie Mae and Freddie Mac, said Tad Rivelle, head of fixed- income investments at Los Angeles-based TCW Group Inc., with $115 billion in assets under management.

Elsewhere in credit markets, the extra yield investors demand to hold corporate bonds instead of government debt was unchanged at 194 basis points, or 1.94 percentage point, the Bank of America Merrill Lynch Global Broad Market Corporate Index shows. Yields averaged 4.002 percent.

Interactive Data Corp., the Pearson Plc unit that provides financial market data and services, set initial price guidance for the $1.3 billion term loan the company is seeking to fund its leveraged buyout.

The interest rate on the loan will be 475 basis points more than the London interbank offered rate, with a 1.75 percent Libor floor, according to a person familiar with the offering who declined to be identified because the terms are private. Libor is the rate banks charge each other for loans.

Interactive Data proposes selling the loan at 98 cents on the dollar, said the person, reducing the proceeds for the company and boosting the yield for investors.

One Bryant Park

Bank of America Corp. and JPMorgan Chase & Co. offered potential terms for $650 million of securities tied to a midtown Manhattan office tower.

The top-rated 10-year securities tied to One Bryant Park, a 52-story building opened in 2008 that houses the main office in New York for Charlotte, North Carolina-based Bank of America, may price to yield 155 basis points more than the benchmark swap rate, according to a person familiar with the sale.

The offering marks the third issue of commercial mortgage- backed securities this year, and will bring total sales in 2010 to about $1.67 billion, according to data compiled by Bloomberg.

Credit Risk

An indicator of corporate bond risk in the U.S. rose as Fed officials retained a pledge to keep the benchmark interest rate at a record low for an “extended period” and signaled that Europe’s debt crisis may harm American growth.

The central bank, at a two-day meeting, left the overnight interbank lending rate target unchanged in a range of zero to 0.25 percent, where it’s been since December 2008. High unemployment, low inflation and stable price expectations “are likely to warrant exceptionally low levels of the federal funds rate for an extended period,” the Fed said, repeating language from every policy meeting since March 2009.

The Markit CDX North America Investment Grade Index of credit-default swaps, which investors use to hedge against losses on corporate debt or speculate on creditworthiness, climbed 1.2 basis points to a mid-price of 115.75 basis points as of 5:41 p.m. in New York, according to Markit Group Ltd.


In London, the Markit iTraxx Europe Index of swaps on 125 companies with investment-grade ratings increased 7.5 basis points to 125.5, Markit prices show.

The Markit iTraxx Asia index of 50 investment-grade borrowers outside Japan was little changed at 130 basis points as of 7:52 a.m. in Singapore, according to Royal Bank of Scotland Group Plc.

Emerging Markets

The indexes typically rise as investor confidence deteriorates and fall as it improves. Credit-default swaps pay the buyer face value if a borrower fails to meet its obligations, less the value of the defaulted debt. A basis point equals $1,000 annually on a contract protecting $10 million of debt.

In emerging markets, the extra yield investors demand to own bonds relative to government debt rose 5 basis points to 320 basis points, the highest since June 14, according to JPMorgan’s Emerging Market Bond index.

Grupo Bimbo SAB, the world’s largest bread maker, sold $800 million of 10-year dollar bonds in its first international issue. The 4.875 percent notes due in 2020 from the Mexico City- based company priced to yield 4.91 percent, or 180 basis points more than similar-maturity Treasuries, according to data compiled by Bloomberg.

Fannie Mae

Yields on Washington-based Fannie Mae’s current-coupon mortgage bonds backed by 30-year fixed-rate home loans fell to about 3.85 percent yesterday, the lowest since January 2009, according to data compiled by Bloomberg.

Their yields have fallen to within 72 basis points of 10- year Treasuries from this year’s high of 93 basis points on May 24, after climbing from a record low of 59 reached March 29.

Bond buyers view so-called agency mortgage securities as a refuge, said Andrew Harding, who oversees $22 billion as the chief investment officer for taxable fixed-income at PNC Capital Advisors LLC in Cleveland.

“They’ve become an anchor in portfolios,” Harding said. “It’s not Treasuries. It’s got some yield, but it’s not equity- like risk.”

The market for agency mortgage bonds has shrunk since it peaked at $5.4 trillion in February, partly because Fannie Mae and Freddie Mac of McLean, Virginia decided earlier this year to purchase about $200 billion of delinquent loans out of their securities to reduce their expenses, according to Bank of America data.

Fed Purchases

Many outstanding securities are also no longer trading after the Fed’s unprecedented purchases, which began in January 2009, and the Treasury’s acquisition of an additional $220 billion of the debt in a separate program begun after the U.S. seized Fannie Mae and Freddie Mac in September 2008.

The weak housing market will likely limit future issuance, said David Land, a mortgage-bond manager at St. Paul, Minnesota- based Advantus Capital Management Inc., which oversees about $18 billion. Outstanding U.S. home-mortgage debt has dropped in eight straight quarters since the third quarter of 2008, falling 3.6 percent to $10.2 billion, Fed data show.

New-home sales tumbled 33 percent last month to a record low annual pace of 300,000, the Commerce Department said in a report. Sales of previously owned homes unexpectedly fell 2.2 percent in May, the National Association of Realtors said.

The median U.S. home sales price slid 29 percent to an almost eight-year low of $164,600 in February from a peak of $230,300 in July 2006, according to the National Association of Realtors in Chicago.

Refinancing hasn’t climbed much partly because there are fewer loan brokers competing to earn fees after being blamed for creating more bad loans than direct lenders, Land said.

“There’s less of a solicitation effort going on,” he said. “If anybody were to figure out a way to refinance people, the mortgage-bond market would be in really bad shape.”
"If a speculator is correct half of the time, he is hitting a good average. Even being right 3 or 4 times out of 10 should yield a person a fortune if he has the sense to cut his losses quickly on the ventures where he has been wrong" - Bernard Baruch

Disclaimer - The author may at times own some of the stocks mentioned in this forum. All discussions are NOT to be construed as buy/sell recommendations. Readers are advised to do their own research and analysis.
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Re: Bonds 1 (May 08 - Jun 10)

Postby winston » Mon Jun 28, 2010 7:30 am

Weekly Review

Bonds. Bonds enjoyed a strong week, rallying solidly even though Europe was supposedly under control for now (10 year US Treasury yield 3.11% versus 3.13% Thursday). Bonds were able to rally a bit, and they rally on worries about the economic future.

When Europe was falling, they rallied because it was a safe haven. If there is worry about the US in trouble (as there were issues with the economic reports this week), then they rise because of worry about US equities.

The money needs to move somewhere else. Breaking through that high, and trying to move to a higher high. Nothing looks like it will stop bonds at least for the near term.


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Re: Bonds 1 (May 08 - Jun 10)

Postby winston » Sat Jul 03, 2010 3:01 pm

Bond Yields Imply The Fair Value Of The S&P Is 750
Submitted by Tyler Durden

One of the less discussed topics by the propaganda machine is that with bond yields approaching record yields, and in the case of the 2Y below them, the S&P has no place trading over 1,000. There was a time when bonds and stocks would correlate, and as bond prices surged, equities would plunge and vice versa.

Now that we live in HFT days where stock values are completely disconnected from fundamentals, and even the bond market, courtesy of the Fed's seemingly endless market interference, it makes sense to extrapolate what the fair value of stocks would be implied purely based on bond yields stripping away for the Fed.

Attached we present a very simple regression analysis between simple 10 year spreads and the S&P, and the 2s10s (steepness between the 2 and 10 Year) and the S&P. What both analyses indicate is that stocks are approximately 30% overvalued, at least based on historical regression patterns relying on yields to imply stock prices.

http://www.zerohedge.com/article/bond-y ... lue-sp-750
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Re: Bonds 1 (May 08 - Jul 10)

Postby winston » Mon Jul 05, 2010 6:27 am

Weekly Review

After exploding higher on the week US bonds took a pause Friday (2.98% 10 year versus 2.95% Thursday). A big breakout as the bond market absorbed some less than stellar US economic data, though the manufacturing sector held fairly tough. Economic worries in Europe fueled the April to June run.

Then bonds broke out again in June, fueled by the US worries as well. Will this cause a change in bond strength similar to the dollar weakening in the face of some European austerity?

Bonds could do that, but overall bonds are telling us that the US and world economies are not looking good. Bonds are a very solid leading economic indicator; history bears them out as a harbinger of economic tidings. Thus their surge higher even as the US economy supposedly continues to improve is the warning the US economy, whether dragged by the EU or not, is going to be under pressure.


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Re: Bonds 1 (May 08 - Jul 10)

Postby winston » Mon Jul 12, 2010 9:27 am

Weekly Review

Bonds. Bonds have similarly lost some of their allure as a safe haven because the economies look to be improving at least the perception is that the economies are better off than we thought in Q1 and Q2. Bonds have lost some of their ground as money is moved out of safe havens (10 year US Treasury 3.06% yield versus 3.02% Thursday). It was not long ago that yields were down at the 2.8% level.

Just as with the dollar, there has been a shift of sentiment regarding the problems with economies around the world. US bonds, while still sought, are not as highly prized because they feel equities can rebound. Looking at a chart on the bond, it is selling back but is hardly in trouble.

Indeed, it has set up an ABCD pattern and could test that prior peak and bounce off that level. Also notice the trendline from April rising. The old support line and this trendline intersect just about where the bond is coming back.

Technically speaking that would be a double layer of support, and one would expect a bounce attempt off of it. How it fares off that bounce attempt will tell us about bonds over the next few months. If it fails, they will continue to fall and we should expect to see stocks rise.

That is interesting given it is midsummer and stocks usually don't perform that well. You do see technology start to perform now, and that would be something to keep an eye on.

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Re: Bonds 1 (May 08 - Jul 10)

Postby winston » Mon Jul 19, 2010 6:44 am

Weekly Review

Bonds. Bonds continued to the upside. Economic fears caused money to flee equities and move into debt instruments. The 10 year rose in the US once more after moving well over 3% on the week (2.93% versus 2.99% Thursday). It was quite the reversal and something we saw when the bonds came down to the trendline and bounced.

We moved in with our own positions on the TLT when that occurred, playing this bounce. We will see how far it can take us. With the US economic data turning sour, it could definitely hit a new high on this rally.

There is a lot of talk about the yield curve right now, and how it is showing no chance of recession because the 2 year rate hit an all-time low. Well, of course it hit an all-time low; the Fed is artificially holding the short end down. It could not rise if it wanted to because the Fed has it pegged lower and will not allow it to move up.

If it does so, it would ruin all of its monetary policy plans. The 2 year hit a record low at 0.58% on Friday. With the 10 year at 2.99%, obviously the yield curve slopes from low to high. It is upwardly sloping, just the way it should in a healthy economy.

Since the curve is not inverted, that causes some people to say we can't have a recession. I will talk more about this in the economic section, but that is bogus. If the government is holding rates at a certain level and won't let them move, then you will not get the inverted curve.

Mind you, a lot of inverted curves occur before the Fed ever takes any action in the market. The Fed comes into play later when it tries to take control of interest rates, and that is when things start to invert. Sometimes it happens before and sometimes after, but normally it doesn't happen as we have seen it here.

It is impossible because the Fed has been in such heavy play in the bond market for years now. The problem is it never would have had a chance to naturally invert as things worsened the second time around because the Fed was already in the market. That may not be totally clear, but if the Fed is holding its foot on the rates, it will not let the short end run higher as typically happens in a recession.

People start valuing short-term money more than long-term money because they see things down the road as worse off. Long-term money is in less demand than near-term cash. That causes the short end to rise, the long end to dip, and the yield curve to invert. That is what is not happening now because of the Fed standing on top of the short end of the curve.

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Re: Bonds 1 (May 08 - Jul 10)

Postby winston » Mon Jul 26, 2010 7:34 am

Weekly Review

Bonds. Bonds took a hit for the second day in a row. Wednesday they were in breakout mode. The stock market was down, and bonds were surging to a new closing high for 2010. That did not last very long; they reversed and started to sell (10 year US Treasury 2.99% versus 2.93% yield Thursday).

It was not too long ago they were even higher, so this is still decent and low pricing, but there appears to be an attempt to sell bonds now. That would make sense. With the European economy looking stronger, there is not much need to run to the safety of US bonds.

If that means more success for the US economy, then that means there are less US investors putting money in bonds as well. There is a bit of a double top over the past four weeks. We will have so see how far that pushes bonds.

The important level is marked by the white horizontal line that runs roughly through the July low. There are some price peaks and closes you can see several of them. Tests along the way. The line goes way back in time, and it is an important one. We will see how it holds.

That is the next important test for bonds, and it is being bolstered by a rising 50 day EMA. If it breaks this level with all of these support points, it will be a significant and important move in that bonds are heading lower.

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Re: Bonds 1 (May 08 - Jul 10)

Postby winston » Tue Jul 27, 2010 6:06 am

Consider Yourself Warned...
by Alexander Green


The brickbats are starting to pour in.

For months, I've warned readers about the bubble developing in long-term Treasury bonds.

Yet what was the top-performing asset class in the first half of 2010?

You guessed it: Long-term Treasury bonds, with a total return - price gains plus interest - of 13.2%.

Why is this happening? Two reasons...

U.S. stocks performed poorly over the first six months of 2010 - down 5.6%. That's driving many to the perceived safety of Treasuries.

The anemic euro is making U.S.-dollar-denominated securities attractive to international investors. And Treasuries are the traditional choice for those fearful of equities.

So does this mean there isn't a bubble after all? Hardly. In fact, the risk now is greater than ever...


1999: An Internet Odyssey

In the fall of 1999, I belonged to a ritzy tennis club - a time when Internet and technology stocks were all the rage.

My playing partners knew I was in the money management business, so there was plenty of chatter among them about "the New Era" and how "the Internet changes everything."

Occasionally, one of my buddies would ask which Internet stocks I was buying.

"None," I said. (I was early to get into the sector and early to get out.) The valuations were outrageous and I didn't think it would end well.

They were surprised by this view, but kept enthusiastically buying and trading Internet stocks like almost everyone else. And, indeed, those stocks kept right on going up.

As the weeks went by, a familiar ritual developed. I'd walk up to the group and - knowing I didn't own any - they'd ask how my Internet stocks were doing.

Laughs all around.

This went on week after week, month after month. And judging by the guffaws, the question was funnier each week than the week before.

Until one day it wasn't funny at all.


2000: Nightmare on Wall Street

In March of 2000, the Nasdaq started coming apart and Internet stocks nosedived. As I approached their courtside table one morning, they abruptly stop talking.

"Morning, guys," I said. "How are your Internet stocks doing?"

Funny... that line was hilarious before. Now it generated obscene gestures, as well as various suggestions for me and "the horse you rode in on." Hmm.

What is the lesson here (other than that we shouldn't laugh at the misfortunes of others)?

It's that you cannot make a rational judgment about when irrational behavior will end.


The "Twin Demons in the Distance"

Internet stocks went up longer than any logical analysis would predict. So did home prices a few years ago.

And the situation with long Treasury bonds right now also defies analysis. Unless, of course, we're headed into a massive, deflationary period. But if that's the case, why are gold and inflation-adjusted Treasuries (TIPS) moving up, too?

Either buyers of gold and TIPS are wrong - or buyers of long-term Treasuries are wrong. I think you know where I stand.

As The Wall Street Journal reported on July 6: "The huge stimulus the Federal Reserve and U.S. government have provided to the economy over the past few years will inevitably push up both interest rates and consumer prices. While the threat isn't imminent, it's not too early to take steps to protect the bond part of your portfolio from those twin demons in the distance."

Consider yourself warned.


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Re: Bonds 1 (May 08 - Jul 10)

Postby Chinaman » Thu Jul 29, 2010 2:36 pm

Malaysia's Maybank sells S$600 million ‘perpetual bonds’

Maybank's 6% bond (in lots of 250K) locally ; it’s meant for institutional investors, and out of rich for most retail.

http://www.reuters.com/article/idUSSIN5241920080730

Bro/Sis need help, what is ‘perpetual bond’?

Anyone here understand the fundamentals of bond investment: yields, premiums & commission ??? I very blur in this leh….must try to understand first b4 dipping in, no joke it’s a qtr of million in a single investment. Sweating pish.
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Re: Bonds 1 (May 08 - Jul 10)

Postby kennynah » Thu Jul 29, 2010 2:43 pm

bro C : i oso duno what is "perpetual" bond... got such thing meh...

this is like saying >> bro C...lend me $250K...i duno when return you. lend me perpetually lah... and i give you 6% annual interest...

if so, some 15 years later, principal sum, mah return liao lor....

next to consider when purchasing bonds in foreign currency is to consider fx risks... but in this case, they are raising money in S$...so, no worries here..
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