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To Extend or Not To Extend, Part I: Slope, Slope and More Slope

February 23, 2010
Kurt Fritz

This is Part I of a two part Disciplined Investor® that considers the question of whether to extend out the curve in this environment. Long time readers may recall Rich’s three handicaps to consider when deciding which maturities to purchase. Those handicaps are slope, slope to Fed Funds, and the absolute level of interest rates. This article deals with handicap one and to some extent handicap two. The historic slope in the yield curve favors extending in this current environment. Part II will deal with handicap three, where the absolute level of interest rates cautions against extending out the curve in too significant a manner.

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Freddie Mac and Fannie Mae Announcements

February 10, 2010
The Disciplined Investor®

Freddie Mac announced this morning that they would buyout all loans in securitized pools over 120 days delinquent. Later in the day, Fannie Mae also announced a delinquent loan purchase program. Remember that buyouts are a prepayment risk because the delinquent loans in the pools are bought back at par, but they are not credit risk, since principal and interest are guaranteed.

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