T-bills versus LIBOR for ARM rates

N

NewVOC_IHB

New member
For all the economy geeks out there:



Since t-bills got hammered today, will there be a drop in rate for ARMs tied to 1 or 5 year CMT? Will this come back to lower LIBOR as well?
 
Given that the European Central Bank has shown no desire to lower it rates, I doubt LIBOR will move lower. Oh, and the dollar is going to go even lower against the Euro.
 
<p><a href="http://www.bba.org.uk/content/1/c6/01/26/49/Mar08.xls">http://www.bba.org.uk/content/1/c6/01/26/49/Mar08.xls</a></p>

<p>or even better...</p>

<p><a href="http://www.bba.org.uk/bba/jsp/polopoly.jsp?d=141&a=11948">http://www.bba.org.uk/bba/jsp/polopoly.jsp?d=141&a=11948</a></p>

<p>LIBOR, as denominated in USD has been trending down.</p>
 
<p><em>"LIBOR, as denominated in USD has been trending down."</em></p>

<p>This, just in from CR.</p>

<p><a href="http://www.bloomberg.com/apps/quote?ticker=.TEDSP:IND">http://www.bloomberg.com/apps/quote?ticker=.TEDSP:IND</a></p>

<p> </p>
 
The TED and LIBOR have both been trending upwards.





Even if the LIBOR comes down it won't be the saving grace for ARMS that adjust. Most 5/1 ARMS written in 2003 have a margin of anywhere between 2.5 to 3.5. Brokers and banks are paid more money if the margins are higher. Most borrowers didn't really care because the margin means nothing until the loan adjusts. If you had a 5/1 ARM @ 4.75% and you r margin is 3.0 your new rate would be 6.12%. Not bad, but still a full 1.25% higher than what you were previously paying. On a 500k loan that's another 521 dollars a month.





In addition, most interest only arms convert to principal and interest payments when they adjust, which will add to the payment. If you have a jumbo arm that is about to adjust, you are probably better off not refinancing given today's jumbo rates.
 
<p>I'm very happy that my ARM is tied to the 1-year CMT vs. LIBOR. It has been coming down quite nicely...</p>

<p><a href="http://www.ustreas.gov/offices/domestic-finance/debt-management/interest-rate/yield.html">http://www.ustreas.gov/offices/domestic-finance/debt-management/interest-rate/yield.html</a></p>

<p> </p>
 
The TED is an indicator of credit tightening or loosening. I am unsure if it factors into mortgage rates. I was asking about the spread because I was wondering if the fed funds rate cut was having it's intended consequence. It may, but so far it seems to having the opposite effect. I guess we will see.
 
It was a good day for bonds today.



FNMA 30-Year 6.0% $102.69 +50bp

FNMA 30-Year 5.0% $99.62 +100bp

FNMA 15-Year 5.0% $101.31 +56bp

GNMA 30-Year 5.5% $102.28 +59bp

US 2-Year T-Note $101.00 +31bp

US 10-Year T-Note $101.34 +134bp
 
You must log in or register to reply here.
Back
Top