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Strategies & Market Trends : The Epic American Credit and Bond Bubble Laboratory -- Ignore unavailable to you. Want to Upgrade?

To: ild who wrote (24928)	1/19/2005 10:27:43 AM
From: russwinter	Read Replies (1) \| Respond to of 110194

<What if this is not the case?. Regardless, all these ARMs have initial teasers or enticements. The Fannie Mae article I posted does a fair job of going into this. For example the 3/1 Libor, CMT hybrid that is now popular at 4 7/8% would really be 5.50% given today's LIBOR, CMT levels. So lenders are subsidizing or cutting their normal margins by 62 bps for the first three years, just to make the loans, collect the one time fees, etc. Even if rates stay low (near here), as the resets take place, payments will go up. Much like water injecting oil fields, this is just more pervasive give it to me now, instant gratification, eat your young, just pay the piper later behavior. There is a $15 billion OMO temp maturing today (and now 14.5b tomorrow). My hunch is that most of it will have to be replaced to keep the markets stable. $5.5 billion so far, and set to expire tomorrow, so light. The very short maturities of these temp adds suggest that the Fed may want to keep their cards close to vest right now. Probably watching the USD? ny.frb.org