Musical Chairs

Just in time for the Feds's disgorgement of MBS. These machinations are really unecessary, but that will not stop the EOTers (End Of Time) from making ponzi and the obligatory robbing Peter to pay Paul histeria.

Feb. 12 (Bloomberg) -- Traders are driving relative yields on Fannie Mae and Freddie Mac mortgage bonds that most influence the interest rates consumers pay to the lowest in 17 years, speculating cash the companies use to buy delinquent loans will be recycled back into the securities.

The difference between yields on Fannie Mae’s current- coupon 30-year securities, which trade closest to face value, and 10-year Treasuries narrowed to as little as 0.66 percentage point yesterday, matching the lowest since 1992, according to data compiled by Bloomberg.

Investors turned to the securities after the government- supported companies said they would buy about $200 billion of loans out of their mortgage bonds, mostly from higher-coupon debt, whose holders are now suffering losses following the announcement. The shift will leave investors with cash to reinvest as the Federal Reserve’s purchases of $1.25 trillion of home-loan debt ends next month.

“It’ll be a cushion for the end of the Fed program,” said David Cannon, global co-head of asset- and mortgage-backed securities at RBS Securities Inc. in Stamford, Connecticut, a unit of Royal Bank of Scotland Group Plc. “It probably makes sense for most of it to come right back into mortgages again,” he said, referring to the cash used to buy the delinquent loans.