The Next Big Trade for Bond Investors Is Betting on U.S. Homeowners

[turbinetree]

One of the best bond trades of 2018 might be one of the top from this year: betting that U.S. homeowners won’t default on their mortgages.

Money managers piled into relatively new Fannie Mae and Freddie Mac bonds known as "credit risk transfer" securities in 2017 in part because they are floating rate, a boon when the Federal Reserve is projecting three rate hikes in the coming year. Investors who bought subprime mortgage bonds after the housing crisis for pennies on the dollar are now getting repaid about $80 billion of principal a year, and are looking to reinvest their funds somewhere.

"It’s been an incredible year for the space," said Dave Goodson, who heads mortgage-backed securities and related bonds at Voya Investment Management, which manages $230 billion. "It’s becoming better and better established. We like that."

The riskier credit-risk transfer debt returned more than 10 percent this year through Dec. 1, according to Bank of America Corp. data, outpacing 7.2 percent returns on U.S. high-yield bonds and 5.9 percent for investment-grade corporate securities. Next year, portions of the bonds could return 3 percent on top of government debt, according to Morgan Stanley analysts. They call CRT bonds “the place to be” in 2018, and list parts of the securities among their top buys for the year for structured finance globally.

https://www.bloomberg.com/news/articles/2017-12-26/bond-investors-next-big-trade-is-betting-on-u-s-homeowners




Why do I think that "credit risk transfers" is another name for "credit swap derivatives"

[Phoenix61]

1. Because you're smarter than the average bear?

Betting home owners won't default...that turned out so well last time.

[greymattermom]

2. Some folks I know in a hot real estate region

are renting out all or part of their houses, and some are even living somewhere else. Rents are high now, and that can pay the mortgage and keep the investment for the home owners. Many suburban homes are now rooming houses where the owner rents out all of the spare rooms and makes an income from the house.

[turbinetree]

4. It reminds me of this and these going on:

http://www.motherjones.com/politics/2013/11/wall-street-buying-foreclosed-homes/


http://time.com/money/4227153/millennials-cant-buy-homes-cash-buyers-investors/



http://prospect.org/article/private-equity-new-neighborhood-loan-sharks

[dixiegrrrrl]

6. Those mortgage buyers took advantage of the housing crisis after 2008

Bought up thousands of homes, turned them into rentals, then SOLD the underlying value to other investors.

Housing debt, rental debt, foreclosure debt, car payments debt, student debt, all have been monetized.

the more debt WE have , the more money it makes for the people who package it up and sell it.

and I am willing to bet, they mixed good and bad debt together when they turned it into bonds, exactly like they did with mortgages that caused the 2008 crash.

[dembotoz]

3. think its time to watch the big short again on netflix

[Wounded Bear]

5. Can't you just feel it growing?...