Mish's Global Economic Trend Analysis Message Board

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Strategies & Market Trends : Mish's Global Economic Trend Analysis

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To: mishedlo who wrote (31706)	6/11/2005 11:05:23 AM
From: Haim R. Branisteanu	Read Replies (1) of 116555

Once I was thinking that AG / (the FED) has brains and is honest – today I question which one of those characteristics are wrong. The low level of Government bond yields are in big part connected to the new “mortgage era” of ARM’s and IO loans. Aside from his own conclusion the major drive behind the low rates are the substantial increase in popularity of the interest only and variable rates mortgages which unraveled the balance that prevailed in the government debt market until the recent years. I doubt that AG is unaware of the various hedging practices used by mortgage underwriters to protect their mortgage portfolio against the swings of inflation and their earnings from spreads, with a relative safe financial instrument. Further the burgeoning trade deficit is also a driver of low government debt interest rate. Hedge Funds merely act as arbitrageurs between the various markets.

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