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Strategies & Market Trends : Strictly: Drilling II -- Ignore unavailable to you. Want to Upgrade?

To: SliderOnTheBlack who wrote (20224)	10/13/2002 6:59:02 PM
From: ild	Read Replies (2) \| Respond to of 36161

Slider, have you seen latest from Bill Gross: pimco.com He agrues that mortgage rates will not follow 10 year note. ...But there are limits dear reader, there are limits. And every sophisticated money manager and financial observer is keenly aware of these limits. They half whisper them over the phone or in their nightmares as if to recognize that the margin of error is now very, very slim. Because we are certainly within 1 3/4% of zero as Ed Yardeni might express it and we are therefore within perhaps 50 basis points of the lowest possible 15 and 30-year mortgage rate that Americans are going to be able to refinance into. Mortgage rates will not follow the Fed Funds rate basis point for basis point lower because the extension risk and the negative "convexity" risk to the buyer (PIMCO) becomes outrageous if it does. There will never be much less than a 5% 30-year GNMA, Freddie Mac, or FNMA mortgage issued in size no matter what Greenspan does - and that's a forecast you can take to the bank, with a high probability outcome. No investor in their right mind would be on the buy side of a 30-year mortgage with a 4% coupon and a potential extension from a 5-year, to a 12, to an 18-year average life staring them in the face. ...