Mortgage market carnage continues
Meanwhile, the mortgage bond fund Carlyle Capital Corp. has announced that it missed four out of seven margin calls totaling more than $37 million. The fund uses a heap of leverage to invest in AAA agency mortgage bonds (bundles of mortgages backed by Fannie Mae and Freddie Mac). As I noted two days ago, the yield spread on those bonds versus comparable-maturity Treasuries has blown out. That reflects forced selling and increasing concerns in the market about mortgage credit quality.
I should point out there are also rumors ... RUMORS ... that UBS blew out a $24 billion portfolio of Alt-A mortgages at "fire sale" prices -- 70 cents on the dollar. Long story short, there's no rest for the weary in the credit markets.
UPDATE: Another rumor recently making its rounds was that the Treasury Department would come out and announce an explicit (rather than implicit) backing of Fannie Mae and Freddie Mac. That caused 2-year note yields to spike up temporarily. CNBC reports that Treasury is denying it. Wild, wild time in the markets to be sure.