Monday, July 21, 2008

Are Fannie Mortgages Cheap or is its Debt Expensive?

The government is willing to backstop Fannie so Fannie can backstop their Mortgage Backed Securities "MBS" if needed to.

So why is the MBS trading ~100 bps cheap to their debt (OAS less CDS) after trading MORE EXPENSIVE JUST SIX MONTHS AGO? Interesting times...