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Oh Yeah,
I remember that one with a distinct lack of fondness. I was just starting
to hedge mortgage pipes with treasury futures and options. I learned all
about basis risk in 1985. But, even at that tender stage in my career, I
was smart/lucky enough to recognize reasonably early in the game that it
weren't a workin (particularly when loans began to fall out of the pipes at
an unearthly pace).
I have to wonder how some of the accounts have let themselves get as jammed
up as they are (being on the wrong side of the basis).
Just talked to a Mortgage banker who had been hedging his servicing with
bond calls. Home run trade. He (I think mostly by accident) ended up on
the right side of the spread but has yet to take his money out (a profit
isn't a profit until you take it). I have to wonder how much he will give
back, particularly now the spread is so far out of balance the other way.
See ya.
Stewart.
At 11:38 AM 10/6/98 -0400, Jim McConnon wrote:
>This is very similar to the explosive bond rally at the end of 1985. There
>were a lot of treasury shorts versus mortgage backed securities and
>corporate/junk bonds. The credit spreads moved out and the shorts got
>squeezed. Same as now.
>
>Jim
>-----Original Message-----
>From: Stewart Taylor <staylor@xxxxxxx>
>To: Timothy Morge <tmorge@xxxxxxxxxxxxxxx>; David (by way of David
><mking@xxxxxxxx>) <mking@xxxxxxxx>
>Cc: omega-list@xxxxxxxxxx <omega-list@xxxxxxxxxx>
>Date: Tuesday, October 06, 1998 10:08 AM
>Subject: Re: Sort of off topic(LCTM)
>
>
>>Tim:
>>
>>Look at the spreads, Treasury to MBS, Treasury to Muni's, Treasury to
>>Commercial Paper and Junk....... Lots of trouble with domestic accounts
>>that have hedged exposure with Treasury Bond shorts.
>>
>>When we talked last week about bonds beginning to take on a life of their
>>own (outside what was going on in the shares)... Im sure that much of that
>>bid was provided by accounts who needed to end the pain in these spreads.
>>
>>Anyway.... Hope all is well.
>>
>>Stewart
>>Stewart Taylor
>>Taylor Fixed Income Outlook
>>Voice: 501-219-9774
>>Fax: 501-228-0963
>>E-Mail: staylor@xxxxxxx
>>Web Site: http://www.cei.net/~staylor/
>>
>
>
Stewart Taylor
Taylor Fixed Income Outlook
Voice: 501-219-9774
Fax: 501-228-0963
E-Mail: staylor@xxxxxxx
Web Site: http://www.cei.net/~staylor/
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