The Recent (Unexpected ) Drop in Rates Could Spell Large Hedging Losses for the GSEs
August 28, 2015
Generally speaking, declining interest rates are welcomed by most mortgage market participants – unless the drop is both precipitous and unexpected, which is exactly what occurred over the past 10 days, thanks to the worldwide stock market carnage. As the weekend approached, the yield on the benchmark 10-year Treasury bond was at 2.17 percent, but earlier in the week – while stocks sold off – the yield fell to as low as 1.90 percent. Fannie Mae and Freddie Mac watchers are now wondering if given the steep (and unexpected) decline in rates, perhaps the two government-controlled mortgage giants will report large hedging losses for the third quarter.