For reasons that I articulated in earlier post - this is all very premature. SOME Fed officials suggest that the Fed MAY want to exit sometime in 2013. How does that impact mreits over the next 9-12 mos? What will these same Fed officials say/think 9-12 mos from now? Bernanke and Yellin both want to keep buying. If rates creep up even a little - refis grind to a halt - meaning there is very little new issuance - meaning that the Fed's share of the mkt buying new issuance gets even bigger % wise. Also the Fed is both committing new $$ and reinvesting $$ from their existing portolio. This 2nd part of their purchases keeps getting bigger as they acquire more and more mbs. The Fed Fed could stop committing new $$ and just reinvest their monthly principal & interest and still control the mkt.
Also - as rates rise - the BV of AGNC's existing prepayment protected portfolio goes DOWN - offset to some extent by increases in the value of agnc'd hedges . but offset by the increased cost of new hedges.
In short - predicting a Fed exit is premature and when/if it happens - the consequences of any such exit will be difficult to manage/ predict.
All very true, but I trade AGNC not FOMC, and selling my Roy today at $5.6 for a 1.3x bagger over a one week holding period made me smile. It was nice to start the first closed trade of the year with a realized gain. A nice confidence booster, and I'll be back later.
On a news basis, with Geithner leaving gives the GOPuxxies another leverage point on Mr. Stalin, (oops I meant Mr. Obama) in the debt ceiling negotiations. They can threaten not to confirm his next Treasury Secretary appointee to gain concessions. I am really looking forward to a volatile Spring 2013, AGNC price volatility spells massive trading gains for me.
The Fed is losing money on the long bonds and MBS right now. They have overextended their balance sheet to create an artificial market and are going to be forced to scale back and unwind. I think to mReits are getting past the crisis point.
or creating another bubble.... been there, done that.
Fed will still have to be wary of deficit costs and construction employment but the long end could rise a point and not create any problems.
One point on the spread could make a world of difference.
Was it just me or did the concern seem to be more about QE4 and the bond buying?
It's hard to tell how much net effect ending QE4 would have on treasuries.
All I ever see out of Europe is bad news.
U.S. treasuries from the world point of view would still be over-bought due to Europe.
So how much would treasury yields actually go up????
Anyhow I'll take any good news I can get.
Nothing but smiles on the price rebounds on things like MTGE, WMC, NYMT, etc.
The stock market may forget easily enough, but the treasury market won't forget for quite some time.
10y @ 1.92 today - a big move for treasuries.
I'd love to see a spread above 2% - it would be a big deal ;)
I was looking for the item that started the selloff. Here is the Rueters version.
This is good news for our sector.
* Fed concerns trigger sell-off
* Some Fed policymakers suggest early end to stimulus
By Frank Tang
NEW YORK, Jan 3 (Reuters) - Gold prices fell more than 1
percent Thursday on signs that Federal Reserve officials are
increasingly concerned about the risks of the Fed's asset
purchases on financial markets, reducing bullion's appeal as a
hedge against inflation.
Minutes from the Fed's December policy meeting showed a
growing reticence about further increases in the central bank's
balance sheet, which was expanded sharply in response to the
financial crisis and recession of 2007-2009.
The minutes also showed several officials thought it would
be appropriate to slow or stop asset purchases well before the
end of 2013, citing concerns about financial stability and the
size of the balance sheet.
"With the news that some policymakers suggested that the Fed
could withdraw QE before the end of year, that put a dent on one
of the underpinnings on gold, which is expansionary monetary
policy," said Mark Luschini, chief investment strategist of
Janney Montgomery Scott, a broker-dealer which manages $54
billion in assets.
Economic fears due to unprecedented Fed monetary stimulus,
including printing money to buy assets - known as quantitative
easing - has been a key driver in boosting gold, a traditional