As many of you know I am an MBS broker. I sell MBS mainly to community banks.
After the announcement of QE3 yields have grinded lower yet again. The treasury is now buying 65% of all production. The yieldiest of MBS namely 30yr 3% coupon now yield below 1.80%. The bulk of my clients will not buy them now because they cannot make an adequate spread to their cost of deposits.
In fact, I have been recommending they sell these investments at a profit to maintain earnings.
The MBS market is overbought, the risks outweigh the rewards, I am a seller here , period.
OK so here is the thought, with the investment yields of
What do you make of today's bounce which started at 10am?
Surprisingly, the bounce is holding, and we even had a big 250k block trade with no apparent drop in price..
Onion - based on the comments you have been making regarding the almost disappearing spreads on new MBS agency purchases, what do you think of the WMC SPO that is more than doubling the size of the company?
It has been well received so far. They say they are buying agency MBS with the proceeds (and may buy some other things). They have to see some value there.
I don't know what to make of it, really.
Thats really what my posts on this subject are saying...I dont know where the spread and divis will come from when the yields just dropped 0.60.
but here is an update , MBS prices are getting hit today, even as treasury prices are rising.
Maybe the trend will reverse
I did a quick survey of all Agency mREITS and most have taken a dip after QE3.
There is an article on Seeking Alpha that claims that QEinfinity will have no effect on AGNC, so only time will tell...
I just read it. Another "quality" article on SA...
Obviously this guy didn't even bother to visit the AGNC website. Even management states that QE3 will drive prepayments to SIGNIFICANT new highs.
Luckily CPR is at 10% and higher prepays won't dramatically affect the yield until it reaches 25%
He focused on the problem of prepays, which will be a big problem, but isn't the core issue. The core issue is that when AGNC finishes selling their high value MBS to increase their BV, they will be left with low quality MBS that barely gives a spread.
Onion, thanks for the reality check. You definitely got my attention - and probably the attention of everyone else here - with the sobering mention that you would not be doing an SPO at this time, if you were running an agency mREIT. I think we all had an idea of the deteriorating picture upon reviewing this past quarter's AGNC earnings, but many of us here also hold a little bit (perhaps misguided) of hope that Kain & Co. are immune - or at least somewhat less susceptible - to the increasingly challenging environment in which the agency mREITS operate. Again, thanks for the reminder of your involvement in the MBS world, and for keeping grounded as we look ahead.
There are those that still see value, that are out there saying keep buying MBS dont fight the fed.
I read that today in a BAC research paper.
I am also saying that if banks cannot make spread on MBS they may start lending again.
The MBS is at 1.60% , well if they made the loans and kept them they can book 3.50%
I am not bashing AGNC, or Mreits , I am just becoming a little leery.
haha I am in many Mreits I love the divis