COBFInfinity

How are people here choosing which JPS to own? Here are some thoughts and questions. While the market has typically had a modest degree of efficiency with respect to the JPS throughout conservatorship, for the past few months there has been a much stronger sorting in favor of: higher dividend rate, higher trading liquidity, and a preference for Fannie over Freddie. It seems reasonable that the higher coupon will matter, even if there is an exchange offer rather than dividend resumption. Personally, I don't pay up for liquidity - if they have a comparable yield, give me the cheaper shares! I am also not willing to pay much of a premium for Fannie over Freddie. I'm not 100% sure, but I feel like it was an idea floated by Bill Ackman around the turn of the year that Fannie may/should exit conservatorship first, then Freddie later. That is certainly possible, but it's unclear that is actually being planned, so not something I want to pay very much to bet on. And the market wasn't really pricing anything like that in prior to Ackman bringing it up. So the net result is that I am mostly in Freddie $50-par issues, with a mix of lower fixed rates and resets. The one big question I still have is what the lower-rate reset issues are worth, relative to the lower fixed rate dividend issues. For example, some Freddie JPS have dividend rates of "5-Year Treasury" and "2-Year Treasury + 0.20%", among others. I have seen some misunderstandings elsewhere implying that these have very little upside because the current yields are well below the fixed coupons; e.g., they argue that the 2-Year Treasury yield is just 3.5% today, while the lowest yield of any Freddie fixed rates is 5.0% and therefore, the reset issue is worth much less. Of course, that is not how floating rate/reset securities are priced as they don't have the same duration and the idea is that, setting aside credit risk, they are expected to trade near par in different interest rate regimes. However, that doesn't mean that these reset JPS would trade at the same market price as that 5.0% coupon today. For one thing, the preferred stock market has changed. The Freddie issues I'm referring to were issued no later than 2001, before the Fed Funds rate worked it's way down to 1% and lower. Had they been issued at a later date, they would have had required a floor coupon of probably 3-4%. So in the modern preferred market, these older reset JPS aren't as competitive and therefore should trade at a discount of some kind to low fixed rate issues. But how much should that discount be? I don't see any comparables in the preferred stock universe right now because a) most preferreds in the financial sector of this vintage or older were called during the ZIRP years and b) there don't appear to be many, if any, that are tied to Treasury rates. So does anyone have relevant comparables, perhaps in corporate fixed income, that show relative pricing between a single issuer's long-dated fixed and reset bonds? Are there such matches out there anywhere? My general sense is that the market is pricing most of these reset issues pretty rationally at about a $2 discount compared to the 5.0% or so dividend series', but it would be interesting if there was some relevant comparables out there.

With respect to the GSE's, I'd be a lot more concerned about the mortality of Trump than of Paulson.

If you are smart enough to predict the direction of interest rates, this is definitely one of the WORST ways to play it, lol! A highly illiquid security with a duration of ONLY 14, with credit risk, and you already acknowledged does not get priced at fair value...hard to imagine why anyone would bet on interest rates with this thing. Just admit that you're trying to pump up the price and then go away. We're all aware of the security's existence and can follow it if we choose. Again, I have had KTBA calculations in a spreadsheet going back to 2007 and have owned it briefly a time or two. You're not the only one who knows about it.

Anyone have thoughts on comparisons to what Trump admin is doing with Intel? I don't know much about the CHIPS Act, but if I understand correctly, Intel (among others) was given a big pile of money with no profit sharing agreement, but profit sharing could have been done in up front, and now the Trump admin is coming in after the fact and saying that the government should have gotten equity then, so they just want to take it now. Is that pretty close to accurate, at a high level? I have never had the slightest confidence that Treasury was going to just write off a huge portion of it's investment so that GSE investors will be "treated fairly", which is why I've always limited myself to preferred stock (has been risky enough for my taste). The Intel example sure seems to support the idea that a corporation's shareholders' rights (whether in conservatorship or not), are not that high on the list of concerns for Trump admin. What do you think?

Lol, no one does that. And even if they did, isn't there a slight difference between 10 and 70 years?

I've been buying Third Party Trust Preferreds at a discount to the underlying bonds since 2007, but yeah, I'm probably not smart enough for this one. If you don't think maturity is relevant to a security that might have no liquidity at all one day, then that's your preference. Can't you comprehend that many aren't interested? And as a reminder to a comment you keep ignoring, many brokers won't let you put in a buy order. So even some people who might want to buy it can't do so. So just go ahead and buy all of them.

Why do you keep pumping this year after year? Is it the only thing you own? It's still an illiquid 70-year bond, and can't even be bought at many brokers. So can't you see why not everyone wants it? Just buy it all up yourself and keep the excess profits.

Ok, what does that mean? There is absolutely no chance these companies merge before November.

What is the Great American Mortgage Corporation?

It does appear bullish, except I have no idea what it means. Do you?

Lol, there wasn't even a surplus this one time. "The Treasury Department noted that the month benefited from calendar adjustments, without which the deficit would have been $70 billion." Source: https://www.cnbc.com/2025/07/11/treasury-posts-unexpected-surplus-in-june-as-tariff-receipts-surge.html

I don't follow MBS spreads, but an article or two imply that there wasn't much movement in MBS market today. Can anyone confirm?

Pulte confirms that there is, in fact, no plan at this time. One can never assume competence from these guys until they actually show their work. https://www.cnbc.com/video/2025/05/28/fannie-mae-and-freddie-mac-could-be-worth-trillions-of-dollars-says-chairman-bill-pulte.html

Meaningless to talk about conversion of JPS at a particular common price until it is clear what happens to SPS. JPS aren't going to swap into common at $10 if potential exists for full SPS converted such that common drops to $3.

Daaaaaamn...DJT had mentioned the GSEs like 2-3 times in the prior decade, now twice in a week. I think they really do want to get it done this time.

I think everyone in the housing and mortgage markets would disagree that an unforced (in their opinion) 20bps widening of spreads in "nothing."

I saw the survey a few months back and can't find it again now, but I think if a government backstop remained, it was expected to be tighter than that - like 5 to 15 bps? Anyway, the question we don't have an answer to is how much is too much? A 40bps widening of mortgage spreads would be massive and if there was any sign of that happening, they would slam on the brakes on an exit. The only message from Bessent and Pulte is that "mortgage rates (by which they meant spreads) not rise", so we have no evidence that they're willing to allow much of an increase at all - maybe 5 to 10bps? Who knows? Risks remain here. Waaaaay to early to celebrate an exit when they haven't even laid out a plan. There was all sorts of planning last time around and it still didn't get done.

Given the remaining possibility that the Trump admin will fumble this or get scared and punt again, causing JPS to fall 70+%, the JPS might be appropriately priced. What baffles me is that common shares are being priced using Ackman's assumption that a bunch of SPS liquidation preference will just be forgiven. Maybe the big time PMs that actually get to talk to people inside the administration know things I don't, but that still seems like a wild risk to take, particularly relative to JPS pricing.

Based on the current terms of the SPS, Treasury won't receive any cash flow for years to come. So that would imply ending the conservatorships is the only way to get any cash out during Trump's term. Buuuuut, there isn't anything stopping them from adjusting the SPS terms yet again, is there? When Treasury and FHFA have been given a rubber stamp by the courts to do almost anything they feel like, it makes it hard to guess what might happen.

These securities very often don't act the way you would think. It seemed like there were multiple positives over the weekend, but nonetheless common are down a bit while JPS are up slightly.

It is very unclear to me whether they are just downplaying a release plan to reduce resistance, or if they are just working towards another punt after 4 more years. I mean, Pulte had several tweets over the weekend referencing employees' potential for growth potential in their careers and earnings - it's easy to read into that must imply a release with future stock options in play, etc. Of course, it could just means he is going to try to get a bunch of people fired (opening the door for others), but since he won't be running the companies, I'm not sure he has much sway in that.

Trump signed an executive order to create a sovereign wealth fund. I have no idea if POTUS can do that without Congress, but in any case I can't help but hear Bessent say this and not think the GSEs are at least in consideration here. "We're going to monetize the asset side of the U.S. balance sheet for the American people," Bessent said. "There'll be a combination of liquid assets, assets that we have in this country as we work to bring them out for the American people."

But Ackman's logic rests on the assumption that the market prices the stocks at a 15 P/E with SPS deemed repaid, and as low as a 5 P/E with SPS conversion. Is Treasury going to buy into that argument? Seems like a stretch to me.

"Making everyone happy" is not required. For example, common shareholders have no legitimate argument that the SPS be written off in any way - they just want that to happen so that they get more of the company. My base case assumption is that common ends up with very little unless Bessent implies otherwise at some point, so satisfying the desires of common shareholders doesn't play into my expectations at all. They could easily lose 80-90% of current stock value and the end of the conservatorship can still occur.

As I read the daily news about Trump wanting to annex other countries or ban windmills, with not a hint of him caring about Fannie Mae or Freddie Mac, I do ponder whether this thread will still be going 4 years from now and the elusive 10-bagger still out there somewhere...