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  • Will We See Inflation or Deflation? [View article]
    The inverted yield curve would definitely be a problem for NLY & AGNC, but the hazard Smarty Pants describes ("If foreigners holding US debt start selling in earnest") has other complicated results. It will increase long term rates as well as short term rates thus driving down the value of the in-place portfolio of GSE securities at both those companies. That decrease would be particularly negative for the value of the collateral behind the short term repos used by both to finance their leveraged assets. Margin calls on those repos could be a much more severe problem than just reduced net interest margin.

    Inverted yield curves happen for lots of reasons but are not likely right now. Sovereign Wealth Funds selling US securities...maybe more likely.


    On Dec 04 01:18 PM america_f_yeah wrote:

    > Smarty Pants,
    > What you’re referring to is interest rate risk, credit risk is generally
    > thought of as the risk of default. Certainly if the yield curve inverts
    > (short term rates higher than long term rates) NLY and AGNC would
    > not do well but the thesis in this article is based on the yield
    > curve remaining steep.
    Dec 04 15:33 pm |Rating: 0 0
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