Tuesday, June 29, 2010

The Debts of the Spenders: PIMCO Blasts Fannie and Freddie for MBS Manipulation

And here I thought PIMCO would be happy with these high prices. . . Oh wait, they sold most of their MBS months ago. For more irony, compare this story against the backdrop of strategic home defaults where 1 in 5 or 20% of homeowners (err...isn't that the wrong term?) choose to default on their mortgages even when they have the funds to meet payments.

"The 30-year 5.50 percent coupons are insanely expensive," Scott Simon, head of mortgage and asset-backed securities at Pimco, manager of the world's biggest fixed-income fund, said in an interview with Reuters. "If they (Fannie and Freddie) could make the most money selling agency MBS, they should."

The global financial turmoil has benefited not only U.S. Treasury securities, but also agency MBS as foreign and domestic buyers have sought the relatively safe-haven investments.

But Simon also said prices on the MBS are too rich for his taste.

"Even if this coupon cheapened a full point, I would still not like them and we are not even close to levels where I would consider buying them," he said.

"We have to assume that somebody must have been telling them not to sell," Simon said. "They are not supposed to be running a business where they lose money holding on to their positions."


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