Replies to post #306698 on $Stock*Shop*Charts*News*Option$

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The Treasury sells $16B in 30-year bonds at 4.72% (.pdf). Bid-to-cover ratio of 2.22; indirect bidders take 28.5%. ~~

Santelli flunked it!

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Barry R>Strategic Non-Foreclosure Becomes Official Policy

By Barry Ritholtz
February 11th, 2010, 9:15AM

One of my favorite bizarre twists on the credit crisis and housing collapse has been the concept of Strategic Non-Foreclosures. I usually mention this when speaking to groups to see the reactions people have — they tend to be stunned at the banking opposite of Walkaways (Strategic Defaults).

But now, under the guise of new bank experiments, the Strategic Non-Foreclosure is becoming official policy. First, we get friendlier terms such as “Soft foreclosure” or “Deed for Lease.” And, it appears to offer numerous benefits for both parties (though more for the banks then the borrower):

• Delinquent Borrowers get to stay in their homes for longer periods of time;

• Lenders get to avoid paying utilities, homeowner association fees, and providing maintenance costs such as snow shoveling and lawn cutting;

• RE Tax obligations remain in the name of the borrower;

• Banks do not have to take an immediate right down of a bad loan;

• Other properties in the same neighborhood where the lender may have exposure delay suffering the negative price impact of a foreclosure;

Here’s the Washington Post:

Seeking alternatives to the nation’s struggling foreclosure prevention efforts, federal and mortgage industry officials increasingly are looking for ways to get distressed borrowers to leave their homes voluntarily, without going through the expensive foreclosure process or a messy eviction.

Citigroup, for instance, plans to announce a pilot program on Thursday that would allow delinquent borrowers who don’t qualify for or decline mortgage relief the opportunity to stay in their homes without making payments for up to six months before turning over the keys, in return for keeping the property in good condition. The bank estimates that up to 20,000 borrowers in Texas, Florida, Illinois, Michigan, New Jersey and Ohio could be eligible.

The program is just the latest amid a growing acknowledgment that foreclosure prevention efforts will fail to reach millions of borrowers over the next few years.”

As you can see by the Credit Suisse chart below, the policies might have become official recently, but the gap between delinquencies and foreclosures has been expanding for quite some time . .





Previously:
Strategic Non-Foreclosure (October 28th, 2009)
http://www.ritholtz.com/blog/2009/10/strategic-non-foreclosure/

Strategic Defaults in Florida
http://www.ritholtz.com/blog/2009/10/strategic-defaults-in-florida/

Source:
Mortgage officials try exits softer than foreclosures
Renae Merle
Washington Post, February 11, 2010
http://www.washingtonpost.com/wp-dyn/content/article/2010/02/11/AR2010021100010.html

http://www.ritholtz.com/blog/2010/02/strategic-non-foreclosure-becomes-official-policy/

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MISH>Corporate Bond Yields Offer Hint Party Is Over

For months I have been suggesting that as long as bids for corporate bonds remain firm the stock market will not collapse. (Note that "not collapse" is not the same as continue to rise.)

We are now starting to see cracks in the corporate bond market. Please consider Bond Sales Tumble 90%, Junk Returns Go Negative: Credit Markets.

Investment-grade debt sales are drying up and returns on high-yield bonds have turned negative for the year as investors wait to see whether European leaders can contain Greece’s budget crisis.

Borrowers in the U.S. and Europe sold $4.71 billion of high-grade securities this week, the least this year and about 90 percent less than the average $52.9 billion, according to data compiled by Bloomberg. Speculative-grade, or junk, bonds in the U.S. have lost 0.09 percent in 2010 after gaining 1.52 percent in January, Bank of America Merrill Lynch index data show.

“Sentiment has turned significantly amid concerns about sovereign deficits and problems surrounding Greece and other peripheral euro-zone economies,” Simon Ballard, a senior credit strategist at RBC Capital Markets in London said yesterday. “For the moment, we’re unlikely to see much in the way of primary market activity as investor sentiment remains fragile and the broad market feeling is one of nervousness.”

Corporate bonds have returned 1.39 percent this year, according to the Merrill index. Junk bonds lost 1.58 percent so far this month, the most in a year, the bank’s U.S. High Yield Master II Index shows.

Prices of high-yield loans fell for the fifth straight day. The S&P/LSTA U.S. Leveraged Loan 100 Index declined to 88.93, the lowest since Jan. 8 and down from 89.07 the day before. Leveraged loans and junk bonds are rated below Baa3 by Moody’s Investors Service and below BBB- by Standard & Poor’s.

ITC Deltacom was the fourth high-yield borrower in almost four weeks to cancel a sale. New World Resources NV, a Czech- owned coal company, called off its 700 million euro ($964 million) bond offering, citing “negative market volatility,” in a statement distributed yesterday.

Rot Starts In Subprime

Rot of rising yields is starting to eat away at junk. Canceled sales are another indication of changes in investor sentiment. High grade corporates are still holding up, but for how long?

Corporate bonds are more than fully priced and if they crack, the equity party is over.

Treasury Yield Curve



click on chart for sharper image

In the above chart ...

* $TYX = 30 Yr Yield
* $TNX = 10 Yr Yield
* $FVX = 05 Yr Yield
* $IRX = 03 Mo Yield


I do not think that treasury yields break to the upside. However, they could. And if they do alongside corporate bond yields, there is a distinct possibility, and one that I have pointed out before, that there may be no places to hide in 2010 other than perhaps the much despised US dollar.

Risk is very high, and rising.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
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