USA Paper Dump Continues: Norway's $570 Billion Sovereign Wealth Fund Sells All US MBS Exposure

[stockholmer]

http://www.zerohedge.com/news/us-paper-dump-continues-norways-sovereign-wealth-fund-sells-all-its-us-mbs-exposure

Two days ago we noted http://www.zerohedge.com/news/foreigners-sell-second-largest-amount-us-bonds-ever-past-week-record-93bn-us-paper-sale-past-2- that foreigners are selling US paper at a record pace, whether to raise capital in a locked out liquidity environment like French banks, or to make a politicial statement, like China. Today we get the first confirmation to this from Norway's Sovereign Wealth fund, best known for its prediction that it would buy and hold Greek bonds in perpetuity back in September 2010. Just recall: "Norway has taken the view that will not . The Greek holdings are particularly interesting because the consensus in the market is that they will at some point restructure or default." Well, about a year later it is now official that the best the Norway SWF can hope for is a 50% recovery. So what does it do? It proceeds to dump US paper. Mortgage Backed Securities first. Because if it announced that a sovereign wealth fund instead of buying into the biggest ponzi ever, we finally defecting from it, then all bets would be of. Bloomberg reports: "Norway’s $570 billion sovereign wealth fund sold all its holdings in U.S. mortgage-backed securities as part of a shift of its fixed-income portfolio. The fund now holds no mortgage bonds issued by Fannie Mae and Freddie Mac, the U.S.-controlled mortgage financiers, and an “insignificant” amount of private home loan-backed bonds, said Yngve Slyngstad, chief executive officer of Norges Bank Investment Management, today in an interview in Oslo. “We’ve reduced our holdings of mortgage-backed securities,” he said. “MBS has been taken out of our internal policy benchmark. This means that we don’t have mortgage-backed securities issued by Freddie Mac and Fannie Mae any longer."

The stated reason for the dump: prepayment risk: "The debt was sold primarily because of the refinancing risk, he said. In the U.S., when a borrower refinances a mortgage it can cut short the maturity of the bond backed by the loan and reduce the expected interest over time, so-called prepayment risk." The real reason? Why shoring up capital of course. "The fund held 36 billion kroner ($6.6 billion) in bonds from Fannie Mae at the end of the second quarter and 11.5 billion kroner from Freddie Mac at the start of the year." And with the Fed telling us that almost $100 billion in US bonds and MBS having been sold in the past two months, one can be absolutely certain that i) it is not just MBS and ii) it is not just Norway.

From Bloomberg: http://www.bloomberg.com/news/2011-10-28/norway-s-sovereign-wealth-fund-sold-all-u-s-mortgage-bonds.html

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And some more color on the fund administering the trade surplus of what some consider Europe's best run country:

The fund announced today it has changed its internal benchmark portfolio, reducing it to 4,000 bonds from 11,500 bonds and keeping primarily corporate and government debt. The fund also weighted its euro government bond holding according to gross domestic product rather than the size of the market, which it had earlier proposed as a way of reducing its holdings in nations with increasing debt. The investor, which is part of the central bank and gets guidelines from the government, held 55.6 percent in stocks, 44.1 percent in bonds and 0.3 percent in real estate at the end of the quarter. It’s mandated to hold 60 percent in stocks, 35 percent in bonds and 5 percent in real estate, which it first bought this year.

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[dkf]

1. Yet PIMCO says buy

Fannie Mae and Freddie Mac mortgage bonds fell earlier this week as the U.S. Federal Housing Finance Agency announced changes to guidelines for the government-supported companies’ refinancing program affecting so-called underwater borrowers.

The decline prompted Pacific Investment Management Co., manager of the world’s biggest bond fund, to call for investors to buy the bonds. Pimco boosted mortgage securities to 38 percent of assets in its $242 billion Total Return Fund in September, the most since January, from 32 percent the prior month, according to data on the firm’s website.

http://www.bloomberg.com/news/2011-10-28/norway-s-sovereign-wealth-fund-sold-all-u-s-mortgage-bonds.html

[Turbineguy]

2. OK, so let's say you lent Greece some money.

You buy Credit Default Swaps to protect your position. You then find out that the same folks who sold you this insurance sold the same insurance to anybody willing to cough up the premium. You know that there is no fucking way these people can pay what they owe in the event of a default. Even the fucking government can't cover this shit. You either have to get out or stand by to get fucked.

You go from there.