Spread Widening: Limited

January 31st, 2008 10:01 am | by John Jansen |

I just finished a conversation with a former colleague who manages a mostly mortgage portfolio. He made the point that the spread widening trade is beginning to feel a little tired. Swap spreads and mortgage spreads are wider but not by much and by not as much as one would have expected a month or two ago given the nature of the news floating around the market today. He makes the interesting point that the marginal impact of bad news seems to be diminishing. (Look at the stock market which went from down hard to posting solid gains as we speak.)

Volatility is still well bid after spiking higher last night. The market has had some crazy volatile days and that is fueling the bid. The entire vol surface remains expensive but expirations of less than a year (Gamma if you are into Greek) lead the charge.

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