Mortgage Merry-Go-Round
In the past five years, he has devised a series of trades to take advantage. In the third quarter of 2008, anticipating government intervention in the mortgage market, he bought agency bonds that were backed by 30-year mortgages while simultaneously selling U.S. Treasury securities. After agency mortgage prices had risen, he closed the trade, shorted 30-year mortgage bonds and bought 15-year bonds. At the end of 2011, he switched to buying 30-year mortgage bonds in anticipation of further government buying.-----------------------------------------------------------
Need to give much more explanation for the above statement.
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Beyond his Fed watch, Narula has geared up his algorithms to anticipate what homeowners will -- and won’t -- do. Because housing values have fallen and banks are stingy with new loans, many haven’t been able to respond to low interest rates by refinancing, even with new government programs.
“Betting that homeowners will not be refinancing has been a winning wager,” Narula says. Pine River’s Steve Kuhn churns through massive amounts of data to determine which bonds to bet on.
