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Strategies & Market Trends : Mish's Global Economic Trend Analysis -- Ignore unavailable to you. Want to Upgrade?

To: reaper who wrote (1680)	3/10/2004 12:04:47 PM
From: mishedlo	Respond to of 116555

Brian Reynolds on Treasuries [you will have to imagine the chart - mish] This chart shows graphically how close we are to repeating last year's record surge in refis. We noted yesterday how hard it is to predict where these feeding frenzies will ultimately go. We've written that, if we were still running a mortgage portfolio, that we would have gotten fully hedged early, but that there are always people who miss the boat and have to catch up. We've seen two more days of Treasury buying, which pushed yields lower and has probably caused mortgage investors to rethink how hedged they are. So, there is a possibility that the feeding frenzy could continue as it did last May. There are two things that could potentially slow or halt it. One is the Treasury auctions that are taking place today and tomorrow (unfortunately, we are still on the road this week, and won't be able to give blow by blow updates). Mortgage managers should take down a significant part of them. If they don't then it is likely that they will still be in catch-up mode. The other factor is the end of the Japanese fiscal year this month. Every year, there are always worries in the bond market that Japanese investors will repatriate their bond holdings for balance sheet window dressing. Any selling pressure on Treasuries may be a great opportunity for mortgage investors to get hedged. If they don't, then, when the Japanese money returns in April, the feeding frenzy could accelerate.