Moneymoney

Mon Mar 11, 2019, 08:58 PM

The Carry Trade is Dead

The real cost of QE —a decade of FED controlled "price discovery" in the credit markets—is always visited worst on the financials when all is said and done. Inevitably it is as a totally flat “Japan-style” yield curve that offers little or no real carry, risk adjusted or otherwise. Last time the FED “paused” in the hiking cycle, in late 2015, the 2-10 spread was 250 basis points (bps). Today it is 15 bps. So much for maturity transformation.

MSRs are a good case in point. They have DOUBLED in price over past three years, and most of the demand has been SINCE rates peaked and began to fall again—actually undermining their hedge value. The same is true with all kinds of commercial real estate credit. As the FED-blown bubbles have exploded, cap-rates have collapsed—and of course leverage has increased to fill the holes.

We have reached the point of economic no return. This is what tops look like. The story is an old one, and like every other time we have told it the end of cycle dynamics are always the same. “Yes," we hear, "the party will end someday—badly we know—but not today, right?” So let’s keep dancing.

Mortgage Servicing Rights - MSR https://www.investopedia.com/terms/m/msr.asp

https://www.theinstitutionalriskanalyst.com/single-post/2019/02/28/The-Carry-Trade-is-Dead

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Reply The Carry Trade is Dead (Original post)
uncledad Mar 11 OP
Oldgeezer Mar 11 #1
uncledad Mar 11 #2
Oldgeezer Mar 11 #3
uncledad Mar 11 #4
Oldgeezer Mar 11 #5
uncledad Mar 11 #6

Response to uncledad (Original post)

Mon Mar 11, 2019, 09:04 PM

1. Good to see someone highlight the idiocy of the QE's....and link to it.

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Response to Oldgeezer (Reply #1)

Mon Mar 11, 2019, 09:10 PM

2. I'll post a little more on the FED.

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Response to uncledad (Reply #2)

Mon Mar 11, 2019, 09:20 PM

3. You don't have to....I know the deal.

I'm not the Sneaker(Shoe) or moneyshot....I know how it works

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Response to Oldgeezer (Reply #3)

Mon Mar 11, 2019, 09:26 PM

4. General public may not...

Someone else may have an interest on where things may go.

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Response to uncledad (Reply #4)

Mon Mar 11, 2019, 09:33 PM

5. The GP isn't go to see it here....there's about 37 of us that post regularly.

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Response to Oldgeezer (Reply #5)

Mon Mar 11, 2019, 11:42 PM

6. That leaves 35...........

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Moneymoney