THE ONE YOU DON'T SEE

We just wrote a piece about Sallie Mae's bond offering recall, saying risk outweighed reward.

Another story in today's WSJ suggests the market is raising rates ahead of the Fed--as is usually the case--concerns mortgage securities backed by loans without government guarantees.

 Once upon a time it was a huge market. It's a market the government hopes to rekindle for obvious reasons, not the least of which is confidence in the whole damn mortgage system.

In January premiums on deals sold as low as "0.97 percentage point for a yield of less than 2%." Like these Sallie Mae bonds, investors seem to be shying away from mortgage backed securities as more are hitting the market.

Now those mortgage securities are yielding nearly 2.6%, 1.75% premium above the interest rate benchmark. Concern centers on higher interest rates down the road. Refinancing of these mortgages has decelerated significantly. Investors don't want to get squeezed in an interest rate hike.

How much farther down the road, well, according to another story today, Bernanke and crew are already dipping their big toe into what effect an interest rate hike would have on those TBTF banks.

Stay tuned. In boxing we have a saying: it's the one you don't see that does the damage.


http://online.wsj.com/article/SB10001424127887323335404578445210965385442.html?mod=ITP_moneyandinvesting_2