Preserve & Treasured... In Deed, Realistically :blush::joy::ok_hand: !!!
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6 years ago
THE MASTERSTROKE, ...Bank have been gobbling up government guaranteed MBS. But they’ve been less likely to actually lend. FactSet
ReplyDeleteThis is where QE3 comes in. The Fed says it will buy mortgage bonds. It has massive buying power. That pushes up the prices of the bonds. And at a certain point, the idea is that the banks won’t be able to resist. They’ll bite, selling their bonds, and collecting a big pile of cash.
But after a few high-fives around the boardroom table, the bankers realize they now have another problem. They’ve got a pile of cash they’ve got to invest profitably. And there aren’t a lot of good places to go. Why don’t they just go buy more MBS?
They could. But remember, MBS are more expensive now. And in the world of bonds, prices and investment returns move in opposite directions.
And QE3 has been hugely successful in driving down the yields on mortgage bonds. A good gauge of these yields is known as the “current coupon” yield. Basically, it’s the going yield on a mortgage bond that would be stuffed with the mortgages banks are currently giving out. Mortgage interest rates have been going down. So the return on these bonds is looking skimpier and skimpier: ...