this is a preferred stock, not a closed end fund, but what a payer! | Closed-End Funds Message Board Posts

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Msg  18980 of 19289  at  7/20/2019 7:45:01 AM  by

lumpygravy


 In response to msg 18978 by  ex_hacker202
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Re: this is a preferred stock, not a closed end fund, but what a payer!

".... floating rate based on LIBOR, which is set to disappear in 2020 - then what happens to
the yield?"
 
 
A post that I made on another forum:
 
Brief clip from KBW's report this morning:
 
Summary
The GSEs announced last week that they plan to adopt the Secured Overnight Financing
Rate (SOFR) as the index for newly originated hybrid ARMs once the anticipated transition
from Libor takes effect in 2021. The majority of the $1.2 trillion of hybrid ARMs currently
outstanding (only about $110 billion of those are GSE-backed) are indexed to 12-Month Libor.
In conjunction with the GSEs' announcement, the Fed's SOFR working group introduced proposed
modeling changes for SOFR-indexed ARMs, which we summarize below and on page 2. The
proposed changes appear fairly benign in our view, but the transition to a new rate/index regime
could still risk further weakening overall GSE ARM issuance. We think any accelerated negative net
issuance could complicate the liquidity outlook for the asset class, which is a key reason we think a
somewhat higher risk premium should be used to value levered Agency ARM investors like CMO,
whose entire strategy is fully exposed to Agency hybrid ARMs.

What is SOFR? The Secured Overnight Financing Rate (SOFR) is an overnight borrowing
benchmark published by the Federal Reserve. The rate is derived from transaction-level repo data,
and should therefore generally track close to Fed Funds. SOFR is currently 2.41%, versus 12M Libor
at 2.23%.

New York Fed White Paper
Link: ARRC-SOFR-indexed-ARM-Whitepaper.pdf

The GSEs will adopt SOFR as the new index for hybrid ARMs in 2021
Link: ntce071119.pdf


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