The turmoils at FNM and FRE created great anxieties and opportunities for both equities and debt TRADERS. The newly passed housing rescued packages by the Congress and signed the President essentially changed the "implied" to "explicit" US government backings on both quasi agency's outstanding debts. Their spreads to US treasuries have tightened in last few weeks. However, the most liquid 15 yr and 30 yr fixed MBS from Freddie and Fannie were under great pressures in last few days. Using 10 yr swap rate as benchmark, FNCI (15 yr Fannie MBS TBA) was priced to 5.50% with spread of 78 bps, that was 4 times of historical 10 year average (see the first chart). FNCI was traded at the cheapest level since 1998. The 78 bp spread to the swap was about four sigmas of the mean. FNCL (30 yr Fannie MBS TBA) was also trade at the lowest level that we have not seen in the last decade (second chart). Comparing to other investment alternatives, current fixed MBS provided the most attractive risk-reward profiles for long term investors.
The skidding of dollars against the major foreign currencies, especially Euro were constantly blamed for the seemingly unstoppable skyrocketing crude oil price. The logical explanation for this relationship often quoted was that crude is traded in dollar and the weakening the dollar is the major reason the higher crude oil and hence gasoline price paid at pump. If the arguments for this negative relationship contributing to a high crude price. We would expect a significant correlations between crude price and dollar strength. Are there any significant correlations between oil and dollar? Regressing crude price with dollar index ( DXY ), we did found the strong negative correlations between the two beginning early 2006 up to now. The correlations reached to the highest at -0.96 today. However, this relationship were neither stable nor constant over time. We can see from the attached chart (the green area represents positive correlations and red areas indicated negative relationships...