Tuesday, March 03, 2009
the market for toxic MBS
According to top traders in asset-backed hedge funds who spoke with HousingWire, they’re now loading up on certain subprime and Alt-A products while telling investors to expect big returns this year from distressed asset bets in the residential mortgage sector.
“Sure it’s spotty, not everything is moving, but we are definitely trading MBS and making a market,” a trader with New York-based Guggenheim Partners, LLC said Friday on condition of anonymity. “What’s moving now is the last cash-flow senior tranche subprime bonds. At prices in the low 20s, it’s hit bottom and the top ABS traders in hedge funds are gobbling it up.”
... “The 20 percent yields on the senior tranche of Alt-A and subprime is what I’m banking on,” another trader at a large New York-based hedge fund said, on condition of anonymity. “The prices we are paying for these senior tranche Alt-A’s — mid 40 cent range — is a real deal now. Even if home prices fall a bit more, the yield on these bonds are still going pay.” ...
Of course, other analysts have been very vocal in suggesting that the proposed bankruptcy cramdown measure could send the secondary market for mortgages into its latest set of fits and starts, as well. But nonetheless, some hedgies are clearly willing to take a risk, betting that fear has oversold the real impact of the proposed legislation.
UPDATE: rolfe winkler at option armageddon polls his credit contacts.
"Don’t buy the hype."