Remember the song â€śStuck in the Middle With Youâ€ť by Stealerâ€™s Wheel? It was background music for a particularly gruesome scene in the Quentin Tarantino movie, Reservoir Dogs.
Well, I donâ€™t know why I came here tonight
I got a feelinâ€™ that something ainâ€™t right
Iâ€™m so scared in case I fall off my chair
And Iâ€™m wonderinâ€™ how Iâ€™ll get down those stairs
Clowns to the left of me, jokers to the right
Here am I stuck in the middle with you
Wall Street bond traders are singing that tune and itâ€™s bouncing mortgage rates all over the place. Theyâ€™re scared because they feel that â€śsomethinâ€™ ainâ€™t rightâ€ť with the underlying loans held by Fannie and Freddie. Still, the US Treasury Secretary has pretty much guaranteed that the government will back Fannie Mae and Freddie Mac should the dung hit the blades.
While the treasury securities market has been somewhat stable these past few weeks, mortgage-backed securities are bouncing all over. Some days they act like treasuries and the spread narrows. Other days, they act like junk bonds and the spread widens. If you listened to my â€śdog on a leashâ€ť analogy, imagine a rabid animal running away from a scared owner one day and a docile pet running and cuddling with him the next.
Like the song, says, weâ€™re â€śstuck in the middleâ€ť which means, in my mind, weâ€™ll see mortgage rates rise a bit, to the 6.5% level, then drop to Continue reading this post