Posted on 06/03/2013 6:47:34 PM PDT by whitedog57
May has been a difficult month for Ginnie Mae mortgage-backed securities investors (like The Fed). First, the US sovereign yield curve has increased since May 2nd.
The spread between the Ginnie Current Coupon and the Bankrate 30 year FHA rate has risen from around 61 basis points to under 100 basis points.
The Ginnie MBS 4.0% duration has been rising rapidly with the increase in the yield curve. See here for a definition of duration.
The convexity of Ginnie 4.0s has increased as well.
The good news for the FHA and Ginnie Mae is the rise in house prices over the past year (Case-Shiller, FNC and Loan Performance) which is helping loan performance.
Just so, The Fed must be sweating a bit with its massive purchase of agency MBS.
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