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If this pig breaks out to new 52-wk high and volume shrinks, I will be shorting. Could be a 3-drive-to-top play and scare out all shorts -- short at 23-25 area?

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From Reuters:

 

FNMA Duration Gap now at +6

 

The last time Fannie Mae's duration gap swung from negative to positive was at the end of November when it moved to +2 months from -6 months at the end of October.

 

In both instances, the asset and debt mismatch changed sharply as a result of a dramatic rise in Treasury yields which pushed up mortgage rates and lowered the expected prepayments of home loans and bonds backed by mortgages.

 

When the duration gap is positive, Fannie Mae's mortgage holdings on average are being paid off at a slower rate and at lower interest rates than the bonds it issues.

 

 

Can any Stoolies clarify what this means please? Thanks

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From Reuters:

 

FNMA Duration Gap now at +6

 

The last time Fannie Mae's duration gap swung from negative to positive was at the end of November when it moved to +2 months from -6 months at the end of October.

 

In both instances, the asset and debt mismatch changed sharply as a result of a dramatic rise in Treasury yields which pushed up mortgage rates and lowered the expected prepayments of home loans and bonds backed by mortgages.

 

QUOTE]

 

 

Can any Stoolies clarify what this means please? Thanks

The Agencies--Freddie & Fannie--issue debt to purchase mortgages.

 

The debt is issued at one rate (a liability).

The mortgage pays another rate (the asset).

 

When rates are falling, the agencies are stuck with having to make payment on the debt they've issued, while seeing refinancing lower the future amount they can expect from their portfolio of mortgages.

 

This mismatch--between what they owe on the portfolio of debt they've issued, and what they earn from their portfolio of mortgages held--is referred to as "duration."

 

As the Reuters report says, when duration is positive, that means that they're in good shape: their future cash flow liability based on debt notes is smaller than the future cash flow assets from mortgages held.

 

When it's negative, they've got problems.

 

But they can handle some of these swings with interest rate swaps, that allow them to hedge away some of the risk exposure they have by issuing debt and holding mortgages. They can also use treasuries (I think) as a means of hedging some of their risk i.e., "cross hedge").

 

That's why when the Treasury market spooked recently, and the debt/interest rate derivatives market sppoked, there was the stench of fear in the air that the Big Players--Agencies, Hedge Funds & Others--might not be able to limit their exposure in the ways in which they'd become accustomed.

 

Sorry for the length, but the market's closed.

 

Al corrections/confirmations appreciated,

 

Jimi

 

EDIT: I think according to the article, I reversed the implications of "positive duration," since as the article observes,

When the duration gap is positive, Fannie Mae's mortgage holdings on average are being paid off at a slower rate and at lower interest rates than the bonds it issues.
. If this is so, "positive duration" implies that the returns being generated by the mortgage portfolio are insufficient to cover the debt portfolio side of the equation (i.e., a disadvantageous mismatch between liabilties & assets).

 

The mortgage stuff is complicated.

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Well today the market failed at a previous trendline, That trend line being form the 7/1 low to the 7/22 low, at the begining fo the month the market broke down thrugh it , and now it has come back up on light volume to test it and it failed there today. Would have been nice if 980 faile dtoo but, we shal see what happens, if that goes there is 976 then the 960-62 level which i doubt very heavily will hold if we can get some good movement/volume through that 80-76 level. We still be in da big range mon' but it tis heavy oud dare.

 

 

I'll trade it from the Long side is if the trendline down form the 7/14 -7/31 H's is broken to the upside on heavy volume.

 

One of my favorite intermediate term trading methods is to play breakouts (on volume) of consolidatin patterns that are aprox a month or more in duration, FX, Indexes, Sectors, good old Edwards and Magee basics.

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I agree w/ sinclair ( although I am not familiar with him) they have their plate full trying to keep all these balls in the air. If stocks come under pressure the short puts have to hedge, selling begets selling. Can they hold this up for another 2 days to protect the dealer community?

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