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Strategies & Market Trends : The Epic American Credit and Bond Bubble Laboratory

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To: mishedlo who wrote (13933)	5/16/2004 6:05:00 AM
From: Wyätt Gwyön	Read Replies (1) of 110194

FNM hedges according to market direction not according to Barron's: The report shows that in a doomsday scenario -- in which 10-year Treasury rates were to rise by 75% or fall by 50% and stay at those levels for 10 years -- Fannie would burn through $27.2 billion of its Ofheo-computed total capital of $35.2 billion in a down move while losing only $5.8 billion in the upside interest-rate scenario. Freddie, on the other hand, would lose just slightly more than $5 billion in both interest-rate scenarios. Clearly Fannie has made an asymmetric "convexity" bet that interest rates are heading higher over the long term. Taxpayers better hope that they are right. online.wsj.com

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