Saturday, October 18, 2008

Bill Gross says to Invest in Fannie-Freddie Debt

More generally, he says to invest close to the "government umbrella:" agency securities and government guaranteed debt. He also says that he thinks LIBOR will decline sharply once the various government programs actually start getting put into operation.

Gross is the Warren Buffet of fixed-income: for example, his bond funds avoided subprime (just as Buffet avoided the tech bubble). But one thing he doesn't mention in this Bloomberg interview is the prepayment-market risk embedded in GSE securities. I do wonder whether the increasingly tough underwriting standards for home borrowers will remain around for awhile. If they do, we should see a structural shift in prepayment behavior for a long time, with conditional prepayment rates (or PSAs) remaining low for years to come.


Anonymous said...

Before you go promoting Gross, you might want to check how much of his fund is in Fannie/Freddie? Conflict of interest?


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