Interest Rate Roundup

Thursday, March 06, 2008

Mortgage market carnage continues

Yesterday, Thornburg Mortgage said it received a default notice from JPMorgan Chase after it failed to meet a margin call. The notice was on a $320 million loan; the call was for $28 million. This credit event has triggered cross-default provisions on other borrowings, causing Thornburg shares to plunge in the pre-market this morning (to around $1.50 from $3.40 at yesterday's close).

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.


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