Trading Update

As I said last week, nerves moved me to the sideline with some cash.

The Fed announcement that they would reinvest MBS principal paydown in Treasuries finally broke the merciless downward grind of MBS spreads over Treasuries.

But it also drove Treasury yields to new lows.  After all, the amount is not peanuts –$200 to $300 billion this year on the monstrous portfolio they had by March 31.

There’s even talk of letting responsible mortgage borrowers refi.  Imagine that!  I won’t be holding my breath.

Still, I didn’t like the tenor of the market, and raised some cash.

One way was closing out most of my short options strangle on FAZ.  It was a nice run while it lasted, and simple time decay made five out of six of the various “legs” of the trade profitable.

I also lightened up on ANH, though it’s still my largest holding.

Added some HTS for the first time in a long time, but my guess is that the dividend holds, and in this environment, 20% yield is unusual and not likely to last.    Let’s hope it drops below 20% due to price increase in the stock, and not decline in the dividend.

more later



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