I'm sure that those of you following the story of the lenders have already seen this story:
"Still, American Home said Friday that earnings will be lower because investors in the secondary-mortgage market and the market for mortgage-backed securities (or MBS) offered to buy its loans at "materially lower" prices.
Lower prices for AA-, A-, BBB-rated MBS and riskier bits known as residual-mortgage securities also triggered losses in American Home's investment portfolio, the lender added.""Still, American Home said Friday that earnings will be lower because investors in the secondary-mortgage market and the market for mortgage-backed securities (or MBS) offered to buy its loans at "materially lower" prices.
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As I both understand and have anticipated, the investor market woke up from its drunken yield stupor and finally realized that it needed to be compensated for this extra risk. Accordingly, in order to peddle these loans, prices have to be dropped. Now, if investors are requiring greater yield for the risk (and MarkM had provided a story for that last week), that means that the value of these bonds resident on the balance sheets of those who have bought this stuff, are going to have to be marked down as well.
Do you have bond funds? Do you know their composition? It might make sense to dig a little and find out.
2 comments:
This should be a choppy week. The economic calendar does not look like it favors the bulls to me. A good week to play both sides.
I see a callout in your blog to something I sent alongl ast week. Early senility is preventing me from recalling what. Or it could be that I am in the middle of selling a house and doing all the last minute little fix up things that, if done earlier, may have contributed to my enjoyment of the darn thing but now are left to the buyer!
Lots of flurries here but nothing sticking. Yet.
Here's the article--it was about the interest spreads widening.
http://tinyurl.com/2vnf67
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