Buy Agency Bonds. Buy Agency Passthroughs.
This will not be a long post. Ask yourself this: in this environment, would the US government step away from the mortgage agencies? I think not. If anything, they might invest in its subordinated debt, particularly if there were a conversion into common stock feature.
Spreads are wide, very wide, and I don’t think the government will let the GSEs fail, particularly after raising their lending limits. The agencies will need more capital for lending , so I would expect more preferred stock issues, and perhaps an equity issuance, if to a key investor, like the US Government.
I don’t see the US Government guaranteeing all of the debt of the Agencies, but I could see it doing it for a period of years on new issues, particularly if the Government received equity warrants.
In this wide spread environment, I would be a buyer, particularly versus Treasuries.
March 7th, 20086:38 pm at
Great work; now if only the lenders to NLY and Carlysle Group would look at it the same way! I guess what’s behind that is the lenders are so weak they are trying to strengthen their own balance sheets. AS an aside I had a client that had a mortgage with BAC; the client had a private mortgage agreement on the commercial property to a third party; BAC called; told the client they didn;t like it and called the loan; a 45 day window or so to pay-off; the client was able to refi with a community bank; but that behavior can not bode well to any leveraged public firm in real estate or debt securities.
March 8th, 200812:06 am at
Can NLY and Carlyle avail themselves of the TAF? I’m thinking no. It seems their bankers have an interest to force these margin calls, take the collateral onto their balance sheets then borrow against it from the TAF, yes?
If the only problem with that scenario is it is too conspiratorial and underhanded of the brokers, I say you must have a higher opinion of them than I do. Though I’d be reluctant to jack around with the Carlyle investors.
March 8th, 20081:39 pm at
I have to think after reading in Saturday WSJ the TMA assets were sold on the open market that lenders do not want to take this stuff on their balance sheets; THere is a big opportunity for a cash buyer higher; PIMCO is laughing right now.