MBS
Angel Oak Mortgage-Backed Securities ETF
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Private credit meltdown. We have securitized private credit, just like we had MBS debt. Insurance companies and pensions are getting invested. More 'cockroaches' emerge, a crash cascades into the market as over leveraged pension funds need a rescue (remember Liz Truss?)
Grok what will be the net liquidity effect of the feds new balance sheet plans in using proceeds from MBS rolling off to buy treasuries?
Called circular financing. Dealerships do this all the time by offering low financing except they get to keep the sale and 2 basis points bump in the financing and bank stuck with the repo when buyer can’t pay. Financial bubble based on selling to no documentation sub prime buyers then trading those loans to Greater Fools until no more buyers existed to buy MBS and sub prime buyers could no longer pay that they never could afford. Take EV credits away and Tesla isn’t profitable. Take circular financing away and just how profitable is NVIDIA or true market cap? All smoke and mirrors propped up by Greater Fools thinking this only goes up quoting nonsense to support their lust for greed and most likely never experienced an actual crash thinking all end quickly like Covid and market jumps the rails but those of us having been around a while known that’s not happening when AI busts. Not saying AI isn’t the future but we need a correction to kick out underperforming as well as have them acquired at pennies on the dollar while these fools capitulate and transfer more wealth to those actually driving the bus. New to trading might want to study the history of trading before handing over their weekly allowance to some prop firm
>Im calling it. This is the top. This is what the beginning of the bubble looks like. Remember, it took 30 years from the creation of MBS to the bursting of the housing bubble. There's a good chance leverage is only going to boost profitability numbers in these early phases. Maybe not for meta, necessarily, but more broadly. Also, Meta's gross profit is $120B per year. $4B in a loser bet or $2B in incremental interest payments isn't going to be a needle mover. It's going to be a long time before those notes come due.
There is no sale of MBS. They just aren’t buying more
And....new ATH incoming tomorrow. The majority of the MBS that the Fed bought back in 2008 have LTVs way lower than what they were back in 2008, as home values have swelled since they bought the portfolios. So it makes it easy for the Fed to sell them off.
Nah I’d disagree with that. It’s the same mentality as the regards here that go into a stock after a 500% - one thing you can guarantee is people will remain greedy. There were tons of people in 08 talking about the unsustainable nature of what was happening, similar to the people today saying this is unsustainable. But people making money aren’t just going to quit and wait it out. Banks holding MBS knew certain tranches were trash and they simply couldn’t do this indefinitely- they just didn’t expect American housing itself to collapse. Most of this sub knows AI is a risky bet where expectations and reality could be misaligned. But no one wants to lose out on gains so we’re going to keep buying till casino closes.
Powell said they're buying short term treasuries as their MBS mature.
I guess we have different definitions of a bubble. Banks packing subprime loans into MBS isn’t what I consider a bubble. Everything .com/AI mooning because they are associated with .com/AI is more bubbly to me
Wrong. They always let MBS mature into Treasuries. There's no change there. Before ---> $35B a month rolled off into nothing. Everything exceeding that cap went into Treasuries. Dec 1 ---> Everything goes straight to Treasuries. It's an objective bump up in liquidity. What caused the bump up in 10Y was the composition of the balance sheet to match outstanding duration. But that's almost 100% jawboning.
You're conflating the two when i didnt imply that at all, the overlap is a coincidence. I said 1999 because that was when lenders STARTED compounding on the MBS bubble, that was beginning to brew while the market was dealing with the dot com.
I thought that the current QT protocol was 25B in treasuries and 40B in MBS's. Did the Fed declare that they'd stop both? When?
I think there was some hope that on a flat balance sheet they would keep a stable MBS balance (buying new when others rolled off). They have now firmed that they are effectively doing a asset allocation swap on a flat balance sheet.
That was very surprising to me. Why not do it gradually instead of all T Bills? Like keep lowering the MBS cap which has never changed since it started.
Rolling maturing MBS into bills. Goooooooooodbye cheap mortgages. Middle class getting the double fuck. Inflation + expensive debt. Dream of home ownership vanquished unless we see a 20%+ price correction.
different types of treasuries mate. He literally said they are gonna buy shorter dated rather than long dated treasuries (as MBS matures)
JPow using our MBS's to buy Treasuries.
October FOMC decision: \-The Fed cut rates as expected by 25 bps. \-There were two dissents. Schmid favored no cut, and Miran wanted 50 bps. \-The Fed will end QT on Dec. 1. MBS redemptions will be invested into T-bills after that. \-The statement changes mostly mark to market the outlook, notwithstanding “available” data instead of “recent” data
Liquidity is a problem, WTF knows what trouble the shadow ban. . . errr . . . NDFIs (gotta keep up with the nomenclature) are desperately trying to contain. Cutting rates, stop QT and buy some MBS and Ts. JPow's gonna tell us tomorrow than any coming inflation is a one time thing, "short-lived". They should play "Pump up the Jams!" when he walks into the briefing room, LOL.
Those were all wildly different times IMO, maybe with the exception of the war on terror since it lasted quite a while (still going?). Some of it was before the internet, almost all of it before the preponderance of retail investing we now have, and some of those times saw crises started by the US itself when things were looking fairly good (dot Com bubble, subprime MBS lending). If there's anything similar, it's the unpredictability.
Considering my prime mortgages keep getting sold at least once a f'n year; no telling what kinda shit they're tossing in around those today. Forget MBS, now its probably MBS+Student Loans+Personal Loans+Medical Debt+OpenAI debt+God knows whatever else Jamie Dimon can hawk off to the next suckers.
I started trading in 2007. The bubble everyone was talking about that year was oil. It was an obvious one, and it burst in June 2007, months before a bubble in housing was common knowledge. The MBS market was more opaque, hidden with fraud-voodoo like Repo 105 (Dick Fuld should be rotting in prison!), so no one seemed that worried about housing until after the banks failed. I wouldn't be surprised if something similar happened today. A lot of talk of an AI stock bubble, but I'm more worried about the esoteric shadowy stuff that is hardly talked about.
Issue with this bubble is there is no one point of failure like MBS during 08. Even if investments into AI infrastructure slow down the economy - it won’t be as drastic like housing crisis. It can continue for a long time and unfortunately the bottom 50% of American consumption won’t stop until they have $0 credit to their name, top 10% have enough to keep spending for generations. Pretty unfortunate for the average American who will see their typical returns but slowly watch inflation/cost of living outpace them.
You're pretty limited to play the housing market downturn directly unless you go with homebuilder ETFs or REITs linked to residential markets. There are some traders that also look at MBS ETFs or short real estate–linked indices through inverse ETFs. Another angle is to track underlying housing metrics like prices, mortgage rates, and loan originations, to find early signals before taking a position. Techsalerator compiles residential real estate and mortgage data at a granular level. That way, it can help gauge when the fundamentals start breaking before the market prices it in. What’s your thesis? betting on higher delinquencies, collapsing home prices, or rate-driven valuation drops?
Private Equity is the new MBS. Mark my fucking words…
Some parts were rolled back, and you are right there were some reporting requirements removed for MBS tracking, but the most significant roll backs were only for smaller banks. Dodd-Frank is still a regulatory behemoth for any bank that would actually cause a 2008 style crisis
Most definitely. Here’s another aspect the market hasn’t priced yet. Trump is going to privatize $FNMA $FMCC via IPO/SPO in Nov, you can buy them on OTC Today. A private FNMA FMCC ($GAMC) can bring down the 30 year MBS - 10 year spread in a very material way, which will pump the housing market. Trump is aligning with the home builders to jam more supply into the market. Between rate cuts and a private FNMA FMCC housing and RKT will soar. The amount of equity in mortgages right now is staggering. Refinancing boom incoming that will put trillions back into the economy. Most folks think that rate cuts + FNMA/FMCC backstopping the 30yr MBS bid will only make housing prices go up. In normal cases they are right. When in reality it’s a rare situation right now where manufacture housing is cheaper than buying from residential sellers. Trump explicitly is aligning with home builders to create enough supply to stabilize or reduce the price of a home. If home prices come down and oil stays low, the tarriff concerns will fall apart. https://preview.redd.it/xae7b9gbyhwf1.jpeg?width=640&format=pjpg&auto=webp&s=08b243da95de6b20ccf30ab985d0b2e9ca537e54
Man I’m not some perma bull or Bear in denial, how you talk I know EXACTLY what side your on. This is just an opinion from someone in the banking business The whole “This is 1929, 2000, or 2008 all over again” Your argument falls apart the second you actually look at the structure of today’s market. In 1929, there was no modern Federal Reserve (Technically YES) BUT, it wasn’t built to do anything like it does now. System policy framework, no QE, no swap lines, no FDIC, no circuit breakers, nothing to stop panic once it started. And 08?…lol Man… I’ve literally got the book at home. You ever actually looked inside those 2008 era CDO structures? It was mezzanine tranches stacked on top of subprime MBS, loaded with 2/28 ARMs, NEGATIVE amortization loans, and NINJA paper. Half the collateral was already deteriorating the day it was securitized. They wrapped toxic SHIT into ‘AAA’ through synthetic swaps and overcollateralization games that wouldn’t make it past a first year compliance desk today. This was a leverage time bomb, and they knew it. Tell me what junk like that exist today ???? IT DOESNT!!!!!!! In 2008, the Fed also moved very slow, didn’t have quantitative easing ready to go, Literally made it up on the go, and spent years stabilizing credit markets. Those were true credit and solvency crises. A bunch of Wanna Be Michael Burrys on Reddit, who grew up reading the House of Cards ;). You will be lucky to call a correction bud Also I didn’t even mention , Post COVID, it’s a completely different playbook. What The Fed do? instantly JUMPED on it !!! cutting rates, launching QE, opening repo facilities and swap lines, and backstopping credit within weeks, corporations were sitting on record cash, households had stimulus, and delinquencies were at record lows. That’s why the system bent but didn’t break. Add in passive flows, ETFs, and instant global coordination, and liquidity floods back into markets at a speed that simply didn’t exist in prior decades. Thats why BTFD will Always work. In the long run. You need to change the way you think Doom and Gloom !!! So when u compare today to 1929 or 2008, you are ignoring the single biggest variable, policy response and liquidity infrastructure. 1929 had none. 2008 had to build it on the fly. 2020 had the full arsenal ready. That’s why we got a V shaped recovery, not a multi year slog. Today’s market is designed to absorb shocks faster, and the Fed isn’t just sitting on the sidelines anymore
Yall thought the MBS bubble burst already? HAH
Jpow was talking a lot about having an overweight portfolio after talking about MBS's........
This isn't even accurate. The treasury runoff rate was reduced to 5 billion in April, so it's at best an annual withdrawal of 480 million. However, in reality, it has been far less than that. Because the housing market has been frozen, nowhere near 35 billion in MBS debt has been running off each month. The actual annual shrink is probably somewhere in the 200-300 million range. I guess you're in the 97%.
Is the treasury buying a flat 30B of non-traded treasury bonds and 3B a quarter in longer duration debt while the Federal reserve rolling off $30B in LTTs and $17B in MBS per *month* sound like easing? Bessent made it clear theyre issuing lots of bills and shorter bonds to basically refi gov debt to the lower rates.
There's already almost 0 quantitative tightening of Treasury bonds. What is left is MBS and he just said they are reaching a point where they end both programs. In other words zero QT which is the last step before QE.
I'm confused. If you're referring to the global meltdown of 2009, then it definitely was a bubble. It's even know commonly as 2008 housing bubble. Banks were selling subprime loans to be able to create MBS, then using insurers to buy swaps. It had all the stages of bubble, including mania, where everyone and their dog was buying a house.
They said everything was fine publicly, meanwhile all the big banks were trying to offload their MBS to as many pension funds they could find and desperately trying to buy back all the swaps they sold to Burry
Point to one. I can provide heaps of info on how banks were aggressively approving large loans for consumers with bad credit. And that wasn’t the only issue. The banks were taking that risky bad credit debt, deceptively packaging it to get AAA ratings on the MBS, and then selling it like prime debt. I haven’t seen any evidence that there is a similar thing happening in AI.
Rates are starting to drop. Fed buys up all the MBS anyway. The people that do have to foreclose will just have their houses go for cheaper to Blackstone spinoffs like Invitation Homes.
PE has become a money trap and will be groundzero for whatever scares the bull market to death imo. "Alternative asset funds" are a black box just like MBS's were. There was a good interview I saw with Steve Eisman recently where he explained the relationship between profits, leverage, and risk for financials. He was mainly concerned about PE and their "alternative asset funds" as well due to the low visibility and the illiquidity of that market.
Tbh idk. What i am guessing is that theyll layer the security with high grade government backed student loans. Then theyll layer in private loans into a lower tranche for the "higher yield" which dont have the same protection as the government student debt. This will make it desirable similar to MBS or CLOs
Thanks this is helpful. Could this mean that the government will try to offload these loans through Sallie Mae since it looks like it already structures private loans into securities Would these new student loans from thr government also have guarantees similar to agency backed MBS
There's a formula you can use to get closer to the answer you're looking for: *durationInYears* x *expectedChangeInYield* = *expectedPercentChangeInPrice* BND has a duration of 5.79 years and yields at about that maturity are around 4.25% right now. So we can take a stab at it and guess yields might fall as much as, say, 2.25% from where they are now in a big stock market event. Therefore, 5.79 x 2.25% = 13.03% BND's portfolio has a roughly 50% stake in Treasurys and those will most likely enjoy the full price appreciation. BNDs 25% stake in agency MBS and 25% in corporate debt will probably be less responsive, but still close.
Contrarian point to the contrarian point: Jeff Bezos and many others are incentivized to stoke the bubble. He gains when the current bubble increases and loses when it pops. What makes a bubble a bubble isn't whether folks know it's a bubble, but whether they know what the underlying mispriced assets getting the bubble are. When the housing crisis happened it was easy to point to houses as overvalued, but they were actually reflecting the fundamentals of supply and demand at the time. Demand was in turn being fed by the MBS market, which was, in hind sight, miss pricing the risk of foreclosure. People in the market did start catching on to the risk, but it took months to unwind what contained or was backed by MBS. We're in the portion where everyone is figuring out what assets are feeding demand for AI related stocks. Some players have already taken action to protect their portfolio, most will get blindsided. Markets are complex, and no one understands the full picture.
The main problem with shorting is if you are investing client money, your clients may not have the patience to tolerate short term losses as the bubble takes its time to pop. It is much easier to ride momentum and buy what everyone else is buying, driving short term returns and earning you bonuses. Michael Burry made a fortune shorting MBS, though.
The 2006 housing bubble and 2008 financial crisis are two different, but related events. The housing bubble was known. The MBS bubble was not. In either case, knowing there is a bubble doesn't make shorting the market a good play. Bubbles can last years and the peak can't be timed.
AI and/or private equity. Hoping it's more like the dotcom crash and not 08/09. PE market is substantially smaller than the MBS market was. So that's good. But the PE model's Achilles heal is leverage. In a bad recession how are they paying the debt?
They came from the MBS System. The so called leveradge. I buy a stock and the broker borrow me Money on it.
Market increasingly interlinked and risk spread. Pro: makes any crash difficult Con: if the crash does come everything gets fucked (see MBS 2009) Extra-Pro: putting everything at risk increases chance of bailout
Gamma ramp everyday yet most of you still just vibe and yell about manipualtion. Options now control movement. Trading is driven by premium. Can this setup to go up or down? Yes. Why up? Because up is self reinforcing and creates more collateral and more leverage. Down destroys collateral and leverage. Remember in 2008 the MBS/CBO collapsed because of fraudulent rating. But the demand was driven by the need for collateral, not selling fucking homes, they just needed MBS to bundle because the market was frothing for fucking collateral. So they would sign up literally anyone because selling the bundled MBS was the money maker. Welcome to the derivative version.
Why does our government ACTUALLY run deficits? The U.S. must run persistent trade and fiscal deficits to absorb global surpluses, while surplus nations depend on those very deficits to sustain their growth. Instead of a virtuous cycle of mutual adjustment, we get a system where one side overproduces and saves, and the other over-consumes and borrows—fueled by financial markets and masked by asset bubbles. Global surpluses (China, Germany, OPEC, etc.) are recycled into U.S. Treasuries, MBS, equities, and increasingly crypto/stables. U.S. capital markets become the release valve for global imbalances. Asset prices are inflated not just by Fed policy, but by global financial repression abroad.
The prevailing conventional mortgage rate is most closely correlated to the 10 Yr treasury + some additional premium. When you’re getting 2% yield buying a MBS, treasuries are generally yielding less. And the institutions that buy these have to be invested in something. Their mantra is “what’s the lowest risk way for me to not underperform my benchmark?”
Never by choice. Music stopped on the MBS/CBO market because the bonds literally defaulted as variable rates kicked in leaving people unable to pay and no buyers leaving equity value illiquid. Had it not lined up, Wallstreet would have kept packaging junk into AAA investments to today.
Oh god, EA will be out of buissness in 4 years tops. $150 for battlefield 7, 8 and 9 once per year everyone. MBS has debt to pay off.
The system creates a feedback loop of capital and trade distortions: the U.S. must run persistent trade and fiscal deficits to absorb global surpluses, while surplus nations depend on those very deficits to sustain their growth. Instead of a virtuous cycle of mutual adjustment, we get a system where one side overproduces and saves, and the other over-consumes and borrows—fueled by financial markets and masked by asset bubbles. Global surpluses (China, Germany, OPEC, etc.) are recycled into U.S. Treasuries, MBS, equities, and increasingly crypto/stables. U.S. capital markets become the release valve for global imbalances. Asset prices are inflated not just by Fed policy, but by global financial repression abroad. This creates systemic risk and future crises will be linked to sudden stops in capital flows, disorderly FX adjustments, or political ruptures. Eg. Yen carry trade July 2024 and repo crises of September 2019.
The selling and repackaging by other firms into MBS’s is true, but the historical reason is that mortgages are loss-leaders for backs to build a relationship with you that leads to more profitable business. A young couples mortgage will lose them money, especially when systematic risks are price-in (they never are), but the lifetime of car loans, chequing account fees, financial advisory services, credit cards, etc. all pay for the slight loss on the mortgage.
A lot of people don’t know that MBS is a big gamer too. That might help things.
When Saudi Arabia bought SNK. MBS shoved in Christiano Ronaldo and his favorite DJ as playable characters into the most recent Fatal Fury title. Which is horrible on multiple levels. Im scared for what they will do to EA franchises.
Agency MBS yield higher than respective treasuries, period. Treasuries have no prepayment risk and have a fixed duration. MBS have the opposite, and require additional yield to compensate.
It’s not that, it’s just regular-way agency MBS
>This begs the question though “Why does any investor want 2% fixed interest income for 30 years?” Surely there are better options for investors. Genuine question though. Generally it's pensions and other investment funds that are extremely risk averse. The type of MBS that holds these low rates would be considered as safe as a treasury bond. It's important to note that these 2-3% mortgages haven't been issued for nearly 4 years at this point. At the time T bonds were only paying 1.8-1.9% so these MBS were considered a higher paying investment.
You are cherry picking favorable stats. The TTM yield of MBB is 4.07% and the forward yield is 4.18%. Meanwhile the 10 year note is yielding 4.17, and the 20 year bond is yielding 4.78%. There is no logical reason to hold MBS's.
30y bonds are safer only if you hold them till maturity. They are risky in that the value of a 30y bond, prior to maturity, will fluctuate, and will fluctuate more than MBS (in theory).
Goverment bonds aren't yielding more. MBB iShares has a YTM of around 4.8% with an average maturity of 6.7 years vs the comparable 3.9% a 7 year treasury currently yields. And there isn't really any extra credit risk because these MBS are issued and/or guaranteed by US government agencies. The main drawback of MBS is they have prepayment risk - if rates go down, borrowers can refi and force the lender to re-invest at lower rates, but the lender can't do that to them if rates go up.
An MBS being more risky inherently would yield more than a less risky investment. It’s the same reason junk bonds yield so much, investors only take on the risk if the reward compensates that risk.
huh? the fed has been engaging in balancesheet runoff for years, including through cares act 1 and cares act 2. do you understand what role the central bank plays and what role the treasury plays ? when the government runs a trade deficit, they sell treasuries to cover the shortfall between tax receipts and spending levels. the central bank does not buy bonds at auction. as bonds on the feds balancesheet mature, it uses the recvd principle to buy more treasuries (5b) and MBS (35b) on the open market. this has nothing to do with treasury issuance, but you seem to think it does ?
I think a more comprehensive answer to that question is that there’s three major sources of investment in MBS - the Fed, Commercial Banks, and Foreign investors. For the former two, their motivations are largely political. They are either implementing or benefitting from QE, and part of the deal for receiving it is that they help support the asset market, which they can do by buying MBS. It might not be the best investment, but it’s great because it satisfies the governments need to placate property owners, and therefore ensures the government will continue to give them QE. And they can arbitrage to a certain extent the real versus perceived risk of buying them, because they’re working under the assumption that the real risk of buying MBS is lower than the face value risk because the government will bail them out again like in 2008. Foreign investors buy MBS as part of an asset mix that allows them to access USD either to hedge their own currency or as an asset they can sell to raise USD to settle trade. In either case they just want a mix because the return is secondary to having liquidity and a balanced risk profile.
They don’t, but you need a certain portion of 2% extremely safe mortgages in your tranched MBS with an overall return that’s higher thanks to the 12% subprimes that are included.
Banks loan money to borrowers at the prevailing interest rate at the time, then sell that mortgage to Fannie or Freddie, who package it up into a MBS (Mortgage Backed Security) which are sold to investors. The bank can make another loan with the same capital and it is the MBS holder that bears the interest rate risk. Investors investing for yield such as insurance companies and retirees invest for yield and will buy whatever investments are available at the time, and hedge interest rate risk in various ways such as creating a “ladder” of investments that mature periodically so they can reinvest at a higher rate if rates go up.
For one, a lot of mortgages that a bank originates are sold and securitized by Fannie Mae and Freddie Mac. The banks basically just get a fee for originating the loan and sell it off. Especially for a 2% mortgage in the ZIRP era, this is most likely a very creditworthy borrower that conforms to Fannie or Freddie loan guidelines, so will be sold off and repackaged in a mortgage backed security. Sometimes the originating bank retains servicing rights, but Fannie Mae and Freddie Mac and by extension, the government bears the credit risk on the loan. However, I think a piece you're missing, especially with respect to the "is this really the most profitable investment they can make" point is that banks by their nature have an extreme mismatch between the duration (google this term if needed, essentially interest rate sensitivity) of their assets (loans and bonds they buy) and liablilties (deposits). They lend (or buy bonds) long term and borrow short term from deposits which can be pulled much more quickly. It's complicated, but essentially banks have to balance profitability with balance sheet and interest rate risk management. Oftentimes, banks do buy investment grade bonds (Treasuries, MBS, corporate bonds) to try and match the interest rate sensitivity of its assets to its liabilities. They also use interest rate derivatives to accomplish these goals as well. While some investments can offer a higher return, banks cannot risk taking on the sort of volatility that equity markets experience with their assets. So banks do sometimes buy higher yielding investments, usually in fixed income securities. Using your example of long term government bonds: There is actually a scenario where just loading up on long term bonds can blow up in a bank's face. It's an extreme example, but Silicon Valley Bank collapsed because most of their deposits were invested in long term bonds. They made some loans, but most of their assets were in long term MBS and Treasuries that were ostensibly default risk-free, but very sensitive to changes in interest rates. So, when rates were hiked by the fed in 2022, these government bonds lost a lot of value. Combined with Peter Thiel essentially starting a run on deposits, SVB had to sell securities at steep discounts and took on huge losses, and depositors continued to pull their money, until SVB could not pay them out.
As soon as that bank sets up that mortgage it is immediately packaged into a MBS (Mortgage Backed Security) that is purchased similar to a bond. So companies, banks or even individual investors will buy this product and collect the payments on a schedule. Now there will still be a bank hosting the accounts and physically collecting the payment, and they get a certain percent for doing so (I believe its around 0.5%) but they dont actually have money on the line at that point unless they also bought the MBS (which does happen sometimes) So Banks make money on the closing costs portion of the loan Banks make a small amount of money managing the loan Bank are often times not at risk for the principal Investors basically fund the mortgage (this is after its closed but they are in general) A bond like security is offered to investors that is already diversified amongst many ppl. This isnt without risk, but far less risky then alternatives Should be noted this only applies to fixed rate mortgages that are "conforming" That conforming is what allows them to be packaged and sold (they all have the same terms and conditions except interest rates may vary)
No what ticker is it. It’s like burry reading the MBS paperwork. He knew it was shit because he looked into it.
Could you imagine if the Fed Chair one day came up and said 'You know, we decided to let the free market do its thing and stop buying MBS and finally start meaningful quantitative tightening to bring back in those trillions of dollars of excess reserves at our banks.' lol, would be the worst stock market day in history.
Meh, the Fed will just print more / guarantee more MBS.
That's not true. When the US cut rates in 2020, SOFR dropped from around 2% to almost 0%. When the Fed began hiking rates to cool inflation, SOFR jumped to 5.3% and has since come down to 4.3%. In the meanwhile, yields on 10 year treasuries followed the same trajectory. They dropped when rates were cut in 2020, rose when rate hikes started, and have been been falling back from its Oct 2023 peak of \~4.9% to 4.1%. Yes, recession fears might keep long-term rates from dropping as much as short-term rates. This is good for some entities (like mREITs) who profit from the spread, and in general large institutions have tools like credit swaps to help them arbitrage some of the short-term/long-term spread. Mortgage banks also have MBSs (if MBS buyers are willing to accept tighter spreads to short-term treasuries), in which case they can afford to finance mortgages from short-term debt since they'll be selling that debt as MBSs. TLDR: SOFR dropping is a big deal. It will lead to drops in longer term treasuries in the long run, but it might be bumpier.
Same thought process theoretical scenarios were thought for MBS, where every bank thought what could go wrong, but here we are. Eventually, bubble will burst, stable coins will become norm with favourite government players
Indeed. FWIW I think there's a chance we have flat or red for a few days. Especially if they leave MBS untouched. At least some expect 50 and it ain't coming probably.
Yeah that’s just Google Trends for “help with mortgage.” Looks wild but it’s literally search traffic, not foreclosures or defaults. 2008 was a whole different animal — banks loaded up on trash loans, MBS blew up, credit froze. Now it’s more like rates are high, people are stressed, so they’re googling options. Doesn’t mean we’re all about to watch a housing crash part 2. Delinquencies are creeping up but nowhere near crisis levels. If anything to watch, it’s unemployment and actual Fed/MBA delinquency data, not a spike in searches. So yeah, people are hurting, but this graph isn’t the “oh sh*t here we go again” proof. Just my take, not financial advice.
Short-term market reaction to bond yields tomorrow are irrelevant. Fed and Treasury controls long term yields. What to look for though: * MBS rolling off speed changes. * Language changes, hints of how fast they want to go in terms of cuts. * Dot plot.
Bond yields are irrelevant. Market does not control it, Fed and Treasury do. That said there a few things to look for tomorrow: * MBS rolling off speed changes. * Language changes, hints of how fast they want to go. * Dot plot.
Cut tomorrow is obvious. There are other potential wild cards. * Stopping or significantly slowing MBS rolloff. * Dotplot. * Significant change in language although most of it seemed to happen Jacksons Hole. That all said, I feel like we need unwind a small amount of jumbo rate cut expectation which is still 4% in rate futures.
same thesis as rocket mortgage, but without the redfin component. All these companies will see an uptick in business when rates cut and the housing market picks up and loan originations and secondary market resale to MBS increases.
Pensions are usually invested somewhere too (at least the solvent ones are). That was part of the outcry in 2008 as MBS were a common investment vehicle for pension funds as they were safe, long lasting, and provided steady income. Until they weren't.
Masayoshi Son has access to Prince MBS' sovereign wealth fund.
This is what you fuckers are doing on 911 but don’t spend any time dealing with the MBS issue. FUCKING GROSS.
2008 there were around 3 million defaulted subprime mortgages, two millions got their MBS (the subprime mortgage contract) moved to Freddi Mac and Fanny Mae and both were nationalized and declared to be bad banks, around one million went into foreclosures. I would take this into consideration, actually we have the classical situation that people dont want to sell below their price but the buyers cant or dont want to afford that. That is a zero sale situation, and I wounder why $OPEN skyrockets where their business turns into shatters. They had 20% negative margin this year.
News will be doom and gloom forever, it grabs your attention much more than the status quo. I'm sure people also saw the opposite of a recession in 2006, but if you did a bit of digging into your average consumer/homeowner or MBS and found out what you did now you would be mortified. Who knows how "healthy" your average consumer really is now with all the predatory debt instruments they can take on. And who knows how long governments worldwide can continue to spend like were in war times with massive deficits and declining demographics. Kicking the can down the road is a countries favorite game
Mstr in the S&P would be the top signal. Like when everyone realized Moody was making up ratings on MBS in 2008. Imagine joining the S&P when your entire business model is selling stock to pay for obligations on the stock already sold. And like what MSTR would be in there but all their other strikes not? Now that I say this outloud I do want it to happen just for the chaos.
Options are a probability calculation, effectively differential equations that price probability value (extrinsic) and excise value (intrinsic). The less likely they are to have value the cheaper they are, theta or time to expiration was the easiest thing to change. So effectively most 0dtes have a huge probability to be worthless, and are accurately priced that way. But retail sees the occasional big hit, and the payouts are huge because the probability was low, and because contracts have been brought from costing thousands to tens of thousands to tens to hundreds by shortening the time frame they throw money to dealers for statistical chances of 95%+ to expire worthless. What's crazy is wallstreet doesnt even need to hide this. In 2008 they had to commit fraud to cover up junk grade of MBS being sold, here they are like guys we made time so short these are effectively trash and are openly saying this and retail is like woah take my money imma be rich. And I sit here going 🤔
Fed has always been political. They kept interest rates low and continued buying MBS at 6% inflation because Biden admin wanted them to play along with the "transitory" narrative to deflect blame about money printing causing inflation. Then right after he was reconfirmed, Powell hiked rates that should have been hiked 6-12 months previously. How much inflation and wealth inequality was created by the Fed's political aquiescence to Biden administration's child like ignorance about inflation?
omg, dumb bers. Listen: Money supply is increasing. That's all the "investing" knowledge you need. Market will keep pumping as Big $ tries to not get offsides. Literally from the Gummint website: Look 'very' closely and you can see where they start tapering (roll off MBS and raise rates) \~2 years ago. - Then not that long ago, you can see they turned the juice back on. [M2 (M2SL) | FRED | St. Louis Fed](https://fred.stlouisfed.org/series/M2SL) https://preview.redd.it/3y7qd2pto6nf1.png?width=2103&format=png&auto=webp&s=974e256217ce9c8f84fdfc8cc9e9c5e9db375227
Yeah the street made options cheap by making time frames on expiration so fucking stupid only retail would buy them. If we were to compare this to the GFC it would be going "who wants to buy this MBS that is nothing but strippers on their 4th houses woth ARMs we arent even going to pretend this isnt junk grade." And retail is like woah woah woah take my money. That us where we have eneded up. Utter, total garbage. Openly sold as utter total garbage. And dealers are making a killing.
A lot of big players literally have rules, contracts, or plumbing that force them to trade when certain triggers hit. Here’s what that compulsion looks like in practice, grouped by why the trading has to happen. Regulatory risk controls and margin make some trades non‑optional. Broker‑dealers must run hard pre‑trade and intraday risk checks under the SEC’s Market Access Rule (Rule 15c3‑5). If orders would breach exposure or credit limits, they’re blocked — which often means desks have to cut risk elsewhere to free up capacity. On top of that, leveraged positions face statutory margin frameworks (Reg T and FINRA Rule 4210) and daily cash “variation margin” on futures and cleared options. When markets move, clearinghouses call cash the same day; if you can’t post it, you must exit or shrink positions. These mechanics are designed to be automatic rather than discretionary — and they create pro‑cyclical de‑risking when volatility jumps.    Collateral calls can force selling even if your long‑term view hasn’t changed. You saw this vividly in the 2022 U.K. pension LDI episode: yields spiked, collateral calls surged, and funds had to sell gilts to meet them, amplifying the move until the Bank of England stepped in. That was a “sell because you must” moment, not a change in long‑run beliefs. Central banks and supervisors have since published playbooks on margin procyclicality because the dynamic recurs in stress.   Derivatives desks hedge their Greeks continuously — the hedge itself moves prices. Options market makers and banks don’t take outright direction on their client flow; they neutralize it. If they’re short gamma to customers (common on 0‑day options), their hedging forces them to sell more as the index falls and buy more as it rises, mechanically adding momentum. If they’re long gamma, they lean the other way and damp moves. This is not optional risk management — it’s required to keep the book inside limits — and it’s now large in scale because 0DTE SPX volumes average ~2.2 million contracts a day. There’s a good academic trail showing option maker hedging spills into the underlying’s liquidity and volatility.    Benchmark and prospectus promises force indexers to trade when benchmarks move. An S&P 500 index fund tells you in its prospectus that it will hold the same stocks, in roughly the same weights, as the index; that promise keeps tracking error low but also means it must trade at index rebalances and corporate actions. S&P’s U.S. indices are reweighted after the close on the third Fridays of March, June, September and December, and Russell’s flagship U.S. indexes fully reconstitute each June — both events that create predictable, concentrated flows from managers who “must” match their benchmark.    ETF plumbing converts investor demand into underlying stock and futures trades. Authorized participants create or redeem ETF shares when premiums/discounts open up, to keep ETFs near NAV. That primary‑market arbitrage isn’t a legal duty, but the incentive is so strong that when spreads are wide, APs will step in — which pushes buys/sells into the underlying baskets and futures whether or not long‑only fund holders did anything that day.   Liquidity providers have quoting and auction obligations that concentrate risk transfers. Lead market makers in ETFs are required by listing rules to maintain two‑sided quotes and meet time‑at‑the‑NBBO and size standards; options market makers must quote a large share of the session in their classes. Around the close, NYSE’s auction rules freeze and then execute Market‑On‑Close/Limit‑On‑Close orders after a 3:50 p.m. ET cutoff. Once you submit those orders, you are effectively “committed flow,” which is why big moves often finalize in the last 10 minutes.   Systematic strategies rebalance by formula, not by opinion. Volatility‑targeting mandates, risk‑parity funds, and CTAs adjust exposure mechanically as volatility and price trends change. The foundational research shows volatility‑managed portfolios cut risk when realized vol rises; insurers and structured‑product sponsors implement similar “risk‑control” overlays that raise or lower equity weight to hit a target vol. When vol spikes, these programs must reduce equity, creating additional one‑way flow — and strategists frequently estimate tens of billions of potential de‑risking when vol rises abruptly.    Fixed‑income hedgers have to rebalance duration when rates move. Mortgage‑backed securities have negative convexity: as yields rise, their duration extends, forcing MBS holders and servicers to add rate hedges (sell futures/receive swaps), and vice versa when yields fall. The Fed and New York Fed have explained how this “convexity hedging” can amplify Treasury moves; again, those trades aren’t a view — they’re math.   Pulling it together, “they must” covers three broad compulsion types. First is regulatory and funding compulsion: risk limits, margin, and collateral calls bite automatically; you adjust or you’re out. Second is mandate compulsion: index trackers, ETF arbitrage, auction mechanics, and market‑making rules require trading at specific times or conditions. Third is model compulsion: option‑desk hedging, volatility targeting, CTAs, risk parity, and rate‑hedging rules translate market moves into prescribed buy/sell flows. None of that says long‑horizon investors abandoned their growth outlook; it says that, intraday, price is set by the players whose frameworks obligate them to act now. That’s why even during a healthy bull market you’ll still see sharp swings that look “tactical” — they’re often just the machinery doing what it’s required to do.
To add further to my point, valuations were actually totally fine. Underlying economy VERY healthy. Just housing went totally out of control due to how wild MBS, CDOs got.
Trying to hedge against all those market curveballs is smart, but sometimes juggling too many bond funds can just make things messier and hardr to track, not safer. FXNAX does have corporate and MBS expsure that can act kinda like stocks when things get shaky, but switching into VGIT and VGLT might leave you expsed to interest rate risk if rates suddenly jump, which could hurt your portfolio just as bad. Plus, TIPS help with inflation but don’t protct against all scenarios. have you thought about how much risk you’re actually willing to stomch if the market tanks, or are you mostly trying to avoid losses at all costs?
I don't think MBS are inherently bad instruments. I just think we went retarded with leverage.
Lmao you want to pay 10% + for mortgages then yeah let’s banned MBS and find out.
valuations are so much higher now than in 2008. Leverage in the system is much higher now. We wont crash as hard as 2008 imo, but CRE debt and private equity debt are huge issues like MBS
SOMA portfolio is massive (trillions). Any treasuries that roll off is money back into the financial system. If UST roll off exceeds $5bln a month which is the case they need to buy more treasuries to maintain the SOMA portfolio which is exactly what is going on. MBS portfolio will never wind down. That’s different and they want to avoid disruptions in the mortgage market. Now sir you can tell me I’m rightt or you are a true dumbass. This is LITERALLY my job in the financial industry
SOMA portfolio is massive (trillions). Any treasuries that roll off is money back into the financial system. If UST roll off exceeds $5bln a month which is the case they need to buy more treasuries to maintain the SOMA portfolio which is exactly what is going on. MBS portfolio will never wind down. That’s different and they want to avoid disruptions in the mortgage market. Now sir you can tell me I’m rich or you are a true dumbass. This is LITERALLY my job in the financial industry