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Fed Expects To Unwind Trillions In Mbs

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Mike Kennedy

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Sep 28, 2003
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Certified Residential Appraiser
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New York
Fed Expects to Unwind Trillions in MBS
Federal Reserve officials said the central bank may begin to reduce its mortgage-backed securities holdings, which total $1.75 trillion and were amassed as part of a quantitative easing program during the financial crisis, Bloomberg reported Feb. 5. However, some worry that the drawdown could harm the U.S. housing market. > FULL STORY
 

Elliott

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Apr 23, 2002
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So the Fed "bought" these MBS at very low interest rates and wants to sell them now at higher rates, so they'll lose value. Brilliant. I wished I didn't have to have a balance sheet. A 1% interest rate change on a 30-year instrument loses about 15% of its value.



30 year.jpg
 
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djd09

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kaboom.

If the Fed is selling are they still going to do QE? Who is going to buy that junk from fannie?
 

Randolph Kinney

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North Carolina
kaboom.

If the Fed is selling are they still going to do QE? Who is going to buy that junk from fannie?

Investors are starved for yield. Pension funds and endowments funds buy long term investment grade (guaranteed) bonds.

The real problem occurs when Apple has to roll over its debt in a rising interest rate environment. Apple has been using debt to buy back equity (stock) and pay dividends. Any operating gain or loss is multiplied by the leverage ratio (debt to equity).
 
D

Deleted member 134708

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If that $230bn (AAPL) over there gets repatriated, prob solved for lot of companies.

Also if I was the Fed. I'd be shifting everything to 100 yr bonds while rates are zero. (Obviously not all new issues, but you get my point)
 

djd09

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The "toxic" assets are still produced daily. And what happens if the home prices adjust downwards. A spoon full of sugar.
 

Randolph Kinney

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Apr 7, 2005
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Retired Appraiser
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North Carolina
The "toxic" assets are still produced daily. And what happens if the home prices adjust downwards. A spoon full of sugar.

When forced selling caused home prices to decline, Wall Street buying homes caused prices to increase because the rental yield and tax treatment was more favorable than conventional investments.

Banks are still sitting on nonperforming assets.
 
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