Lehman Bros. 5.67 D Series Preferred ( fka LEHDQ)

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Mortgage-Bond Prices Double From March Lows in Rally (Update1)
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By Jody Shenn

Oct. 5 (Bloomberg) -- U.S. home-loan bonds without government backing ended a third-quarter rally with a week of gains, leaving some securities at prices almost double their March lows.

Typical prices for the most-senior prime-jumbo securities rose 2 cents on the dollar last week to 84 cents, according to Barclays Capital data. Similar bonds backed by Alt-A loans with a few years of fixed rates increased 2 cents to 60 cents. The jumbo bonds are up from about 75 cents three months earlier, while the Alt-A bonds have climbed from 47 cents.

The debt has jumped from 63 cents for the jumbos and 35 cents for Alt-As in mid-March, as investors accept lower potential yields amid a rally across debt markets and traders anticipate demand from the U.S. Public-Private Investment Program. Investment funds, banks, insurers and Wall Street brokers have been among buyers, according to Scott Buchta, head of investment strategy at Guggenheim Capital Markets LLC in Chicago.

“There’s a ton of dollars sloshing around, and the people who are compensated to put those dollars to work have to do something,” David Castillo, a senior managing director at San Francisco-based broker Further Lane Securities, said in a telephone interview. “The great cushion which the market provided for errors in assumptions is almost entirely gone.”

Feeding the Rally

Home-loan securities in the almost $1.7 trillion non-agency market lack guarantees from government-supported Fannie Mae and Freddie Mac or federal agency Ginnie Mae, and they have been among the largest sources of the $1.6 trillion of writedowns and credit losses reported by the world’s largest financial companies since the start of 2007.

The recent rally has reflected a combination of yield premiums over Treasury debt coming down across credit markets, anticipation of buying by PPIP funds and data suggesting housing is starting to stabilize, according to Tom Hamilton, the head of Barclays Capital’s securitized products trading in New York.

“All those things culminated at once and made for an unbelievable third quarter,” he said in a telephone interview last week.

Sectors benefiting from increased demand for debt also include high-yield, high-risk company loans. Standard & Poor’s/LSTA U.S. Leveraged Loan 100 index has climbed to 85.5 cents on the dollar, from a low of 59.2 cents in December. Investors are seeking higher yields than available in the money markets, accounting for about $300 billion of inflows this year into funds targeting debt such as corporate and municipal notes.

More of the article...http://www.bloomberg.com/apps/news?pid=20601087&sid=aWZHVsw.oK90

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