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Federal Home Loan Mortgage Corporation Message Board

  • irosen1 irosen1 Mar 1, 1998 5:43 PM Flag

    Looking for FRE to drop

    Why you ask? It has rally nothing to do with the Gulf, Asian market, or our economy, however those might be used as the
    excuse. Take a look at historical spreads between short rates and long rates, and the difference on average is usually 1.5%. With
    the 30 gov't treasury yielding 5.94% less the fed funds rate at 5.5%, we have a spread of .44%. I believe in reversion to the
    mean, which means short rates must go down or long rates must go up, to get back to a average spread of 1.5%. I look for long
    rates to test 6%, break through and test 6.25% and maybe 6.5%. On 2/24/98 when the yield on 30 year bonds backed up .12%, FRE fell
    $2.00. A 30-50 basis point move will be brutle on this stock. Technically stock ready to move lower.

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