Wednesday, September 23, 2009

The Debts of the Spenders: Putting Government Mortgage Purchases in Perspective.

A picture says a thousand words. The picture is a series 7 bond asset backed credit index product from made up of sterling components like Wamu asset backed certificates (bank run last September), Bear Sterns bonds ($2/share deal in early 2008)and Nomura loans (acquisition spinoff from the Lehman salvage operation).

Here you can see how many investment funds, such as Barclay's, have decided to unload their mortgage backed security toxic assets to the public again. Selling at the top?

Now, this doesn't necessarily mean the bonds will lose all value. The Federal Reserve is still committed to buying toxic assets for the forseeable future. Just because Treasury purchases are due to wind down at the end of September does not mean the government will stop supporting the mortgage markets. Far from it. Indeed, from an income perspective, these bonds may actually generate some decent returns.

Keep in mind that many of these assets have been trading well below book value for quite some time now.

*If you are interested in seeing more juicy bits of goodness, please go to's web site and click "Markit ABX Indices" under the All Products tab on the right. Then click "Markit ABX.HE Current prices" from the table on the left.

Indeed, Markit describes its ABX index as

"[A] liquid, tradeable tool allowing investors to take positions on subprime mortgage-backed securities via CDS contracts. The index has become a benchmark for the performance of subprime RMBS. Its liquidity and standardization allows investors to accurately gaugue market sentiment around the asset-class, and to take short or long positions accordingly. "

You will now see a chart appear. Focus on the "High, Low, and Price" columns. Here, you can see just how far from grace many of these products have fallen. . . and where they currently trade. For a visual representation, click on the highlighted name to the left.

Disclosure - I have never worked for and have no stake in its products aside from deriving informational value.
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