MBS vs Treasuries, FNMA Earnings, Treasury Auction Preview

The Cleveland Fed recently published a good article on Treasury versus mortgage rate spreads. It has some excellent graphs explaining why sometimes Treasury rates don’t matter any longer. Plus, it isn’t too long, and makes sense.

UBS said that it plans to cut 5,500 jobs and sell a $15 billion chunk of its risky mortgage assets to BlackRock Inc. The group posted a loss of $10.99 billion with $19 billion of write-downs. 2,600 jobs will be dropped from its investment banking unit by the end of the year and another 5,500 by the middle of next year. The assets? A $15 billion portfolio will be sold to a newly-created distressed-asset fund run by BlackRock Inc. The assets being sold have a nominal value of around $22 billion and are being sold at roughly the price they had been marked-down to on UBS’ balance sheet. The bank is also planning to exit its municipal bond business.

Many HELOC’s, like Wells Fargo’s, have a fixed rate option. You can fix it in for 3-5 years, and with rates relatively low is not a bad idea if a borrower qualifies.

Fannie Mae’s earnings are announced later this morning. Speaking of which, Fed chief Ben Bernanke said that Fannie & Freddie should “move quickly to raise significant new capital” to aid the housing market. It appears that he also supports proposals that would have lenders forgiving parts of struggling homeowners’ loans and make Federal Housing Administration refinancings more widely available. Freddie & Fannie raised $15 billion of new capital 5 months ago after losing money for six months, and James Lockhart (OFHEO) has mentioned the figure of another $20 billion.

Speaking of billions, has anyone seen D.R. Horton’s? The company reported its biggest loss ever ($1.3 billion in their fiscal 2nd quarter) and it wrote down $834.1 million worth of land and inventory.

This week is very light in terms of economic releases scheduled, and the market is doing nothing today with the 10-yr sitting in the low 3.80’s and mortgages unchanged from yesterday afternoon. The Labor Department will release its 1st Quarter Productivity and Costs data tomorrow morning. This information helps us measure employee productivity in the workplace. March’s Goods and Services Trade Balance report will be released early Friday morning. This report gives us the size of the U.S. trade deficit but likely will not have much of an impact on the bond market or mortgage pricing. It is the least important of this week’s data. Perhaps more importantly, we also have Treasury auctions (10-yr tomorrow, 30-yr Thursday) that can influence bond trading and affect mortgage rates.