What We're Hearing

To use leverage on your "legacy asset" bid or not to use leverage -- that is the question. The winning bidder on the FDIC's $1.3 billion whole loan auction was levered 6 to 1. In total, 12 consortiums bid on the pool of mostly first lien whole loans (there were 83 second liens in there) but some bidders had all cash and weren't levered. "The un-levered bids were lower but they [the FDIC] took the highest [overall] bid," said one investment banker familiar with the auction. Several hedge funds were part of the consortiums that bid. Meanwhile, at press time, the yield on the 10-year Treasury was at 3.4%. It's assumed that one of these days (when?) the Federal Reserve will stop buying MBS, a strategy that has kept rates low. If the Fed does stop buying (or reduces its MBS purchases) mortgage rates should rise. Or will they? A new report by Francesco Garzarelli, chief interest-rate strategist in London at Goldman Sachs, thinks there's a risk that the yield on the 10-year could fall to 3% amid low inflation...