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April 11, 2008


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It seems unlikely, in the short term at least, that lower Treasury yields will cause mortgage rates to fall.

Interest rates on Treasuries have fallen dramatically over the last 6 months, but mortgage rates have actually risen slightly for a variety of reasons.

One key point is that the surge in Treasuries is very much a flight to quality. By contrast, we can no longer describe mortgage securities, even those issued by quasi-GSEs, to be "quality".

Hence the continuing widening of the spread between the two.

That's my view.

Mr. Fed

You short treasuries?

I am long Treasuries because that may be the only thing worth anything when this whole upside down pyramid folds. I want to be short. Everyone does. But a 3.5 10-yr yield speaks volumes.

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