Wednesday, October 29, 2008

Fed Cuts 50 bps to 1%... Will it Matter?

Even after 425 bps of cuts this cycle, yields on Fannie Mae Mortgage Backed Securities have moved higher.


  1. If those loans are tied to the prime rate, yes. Unfortunately, about half of adjustable-rate mortgages (and most subprime / alt-a loans to those that are most at risk) are tied to LIBOR. Like the MBS shown in the chart, LIBOR has been relatively unaffected by the fed funds rate and in fact is more than a full percentage point higher than it was about six months ago. Could be ugly resets for those...