September 3, 2007
CMBS BBB- Spread Widens to 546 bps
I was surprised to see that the CMBS BBB- spread over the 10-year Treasury had widened last Friday to 546 bps. That’s the biggest single week leap I’ve ever (?) seen. If the credit crisis is “contained,” it isn’t showing up in this measure.
Cat: | Time: 5:26 pm (utc+8)
September 4th, 2007 at 6:49 am
It is far from contained. The ABCP mess persists — as in there are no buyers for the paper — and 70% of the entire ABCP market must be rolled by the end of the month. As a result, given the dearth of investors, a material number of SIV’s will find them selves disgorging assets in an attempt to delever. Also, the all-will-be-well-in-September LBO crowd is about to discover that there is nothing magical about the US labor Day holiday having come to an end. All eyes are on KKR and First Data. I for one expect the banks to get stuffed. Finally, the Euro-dollar futures have the odds of the Fed doing nothing on Sept 18th at 20%. One week ago it was 37%. Oh, and the market places the odds of a 75bp (yes, 75bp) at 30+%. Seems September is well positioned to disappoint. IMO market pyschology is vulnerable to a unpleasant adjustment over the next three weeks.
September 4th, 2007 at 9:19 am
The Economist lists their view of the risks:
Summarized here:
(Beware: this is a lefty blog)
September 5th, 2007 at 3:55 am
The Fed sez, “Try not to default on your mortgage too much.” LOL
Story
September 5th, 2007 at 11:39 am
steve: Thanks for the link, I got a good laugh, love that term “loan modification” ;-)
…
“It is vital that mortgage servicers work proactively with borrowers facing much higher payments as their interest rates reset” … The guidelines were aimed at addressing the fact that in many cases the company in charge of collecting monthly mortgage payments is not the same company that originated the loan.
The guidance said appropriate strategies to ward off defaults could include modifying the terms of the loan or deferring payments. Those modifications could include converting the loan from an adjustable rate loan, one in which the interest rate resets at periodic intervals, to a fixed-rate mortgage that would prevent the monthly payments from rising.
Other possible modifications would include extending the length of the loan and rolling the amount of payments the borrower has missed into the total loan amount that must be paid off.
…
GREAT IDEA, ROLL ALL THOSE MISSED PAYMENTS BACK INTO THE LOAN AND EXTEND IT TO 100 YEARS. ;-)