Morning Report. Fannie Mae comes back to Earth

Vital Statistics

	Last	Change	Percent
S&P Futures	1652.6	5.6	0.34%
Eurostoxx Index	2807.2	20.6	0.74%
Oil (WTI)	92.59	-0.5	-0.58%
LIBOR	0.275	-0.001	-0.40%
US Dollar Index (DXY)	83.7	0.037	0.04%
10 Year Govt Bond Yield	2.14%	0.02%
Current Coupon Ginnie Mae TBA	101.8	0.4
Current Coupon Fannie Mae TBA	100.8	-0.2
RPX Composite Real Estate Index	200.6	0.4
BankRate 30 Year Fixed Rate Mortgage	3.94

Markets are higher this morning in spite of a 5.2% sell-off in the Nikkei 225 last night. Q1 GDP was revised downward to 2.4% from 2.5%. Initial Jobless Claims rose to 354,000. Bonds and MBS are down small.

Yesterday was the first relatively stable day in the Treasury markets in quite some time, notwithstanding the major sell-off in early Asian trading yesterday morning. Today we are more or less in the same place. 

The CFPB has tweaked the Ability to Repay rule a tad, with new guidance for mortgage broker compensation and exempting small lenders that focus on low-income lending. These amendments will take effect Jan 1, 2014.

It is tempting to think the the U.S. Treasury yield is being driven by differing interpretations of Bernake's words. And maybe some of it is. But we are seeing a global sell-off in G7 sovereign debt that started at about the same time.  The US Treasury yield is up 54 basis points since May 1. UK Bonds are up 26 basis points. Japanese Government bond yields are up 31 basis points. That is in spite of a new quantitative easing program by the Bank of Japan - think about that! German Bund yields are up 30 basis points. Everyone started selling off more or less on May 1. My point is that there seems to be more going on in US Treasuries than a simple question over when the Fed is going to start tapering QE. Given the move in world stock markets, it feels like a very big investor (probably a sovereign wealth fund) is doing an asset allocation trade out of G7 debt and into stocks. 

Remember Fannie Mae, which was more or less given up for dead? Well, it has rallied about fourteenfold since mid March. It sold off had yesterday, but you can't deny the move. 30 cents to an intraday high of $5.44. This has been one big speculative toy for the past couple of months, while the big hedge funds are in the prefs. If Fannie Mae survives in some way, shape, or form those bets could pay off. However Fannie Mae is simply sending all of its profits to the government, which is not counting them against money it owes. (They changed the rule last Fall, right before Fannie Mae started turning a profit - what a coincidence). Oh, and before you dismiss it as just another "penny stock" - it sports a market cap of $16.7 billion. Anyway, play in this sandbox at your own risk.

Chart:  Fannie Mae (FNMA)