Hedge Funds Nibbling At Toxic MBS

The biggest myth out there — it gets repeated ad nauseum — is that there’s no market for various mortgage-backed securities and that the government needs to step in to fill that void. There is a market. But like those Manhattan condo owners who think they’re entitled to make a profit, or at least not too huge of a loss on their home, the banks won’t sell at the going rates. But there is a market.

Housingwire notes that some hedge funds are rushing into distressed MBS, sensing big-time value:

Top bond traders are not as worried about pending cramdown legislation as some might think — and some are now loading up on Alt-A MBS after what they see as a fear-based sell-off. According to top traders in asset-backed hedge funds who spoke with HousingWire, they’re now loading up on certain subprime and Alt-A products while telling investors to expect big returns this year from distressed asset bets in the residential mortgage sector.

“Sure it’s spotty, not everything is moving, but we are definitely trading MBS and making a market,” a trader with New York-based Guggenheim Partners, LLC said Friday on condition of anonymity. “What’s moving now is the last cash-flow senior tranche subprime bonds. At prices in the low 20s, it’s hit bottom and the top ABS traders in hedge funds are gobbling it up.” Read the whole thing >

Even CNBC is running some kind of buying opportunity of a lifetime series, though that really feels kind of cheerleader-ish. Either way: bottom line is that investors, even without government help, are seeing and picking off opportunities. It’s the banks that want government help to get the prices they want.

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