SDR, Here’s a relevant recent post on Calculated Risk:
“US Treasury yields declined last week in a “flight to quality” but this is not a new bull market for bonds. Credit spreads (junk bonds) are getting crushed as spreads widen. Investors are trying to unload junk bonds bought over the past few years as credit spreads tightened. Hedge funds long junk bonds and short US Treasuries are forced to cover, which exaggerates the situation. This includes structures that may include those “subprime” mortgage backed securities. The best way to illustrate is to consider 10-Year Swaps and 10-Year Fannie Mae debentures. The 10-Year Swap Spread ended last week at 75.8 basis points wider than the 10-Year, 28 basis points wider year to date. The FNMA 10-Year ended last week at 65.4 basis points wider than the 10-Year, 36.3 basis points wider on the year. Given these comparisons the lower 10-Year yield is not resulting in lower mortgage rates.
DH | 07.28.07 – 10:52 pm | #
