Would You Pay 107 for MBS?

If you think the rally in bond prices is over go talk to Bill Gross, the legendary PIMCO manager who began betting against bonds two years and got his head handed to him. PIMCO has been sniffing around the mortgage space the past few years with not much to show for it except for a company that invests in nonperforming loans. The stock market looks, great, right? Not today, it doesn’t, and as I write this rates are falling once again which means bond prices will remain quite nice thank you very much. Recently one trader quoted us a price of 107 on new Fannie MBS. 107? That’s right folks. These securities should live forever. The only wild card is cash-out refis. If home prices burst upwards in the next few years consumers might once again engage in cash-out deals – but that hope might be a long shot.