cash out via shorting bonds?

C

CaroKann

Is it possible to short bonds (not bond futures) in your account and have the cash available to withdraw and use? I got thinking about this while trying to figure out how, exactly, a mortgate bank can tie the loan rate to the 30 year t-bond.. maybe it is just correlated..

The way I figure it, giving a loan is like buying a bond: pay out lump sum, collect interest payments.
So the mortgage bank would need to short a bond to balance out the bond they "bought" from the borrower, and be neutral. Then they they just rake in the spread, which is the difference between interest rates. Is this remotely close to how it works? Is it possible for an individual to short a bond and get access to the cash? And possibly even create their own mortgage?
 
CAshing out of any margin account is best done wisely. In other words (IOW) should not be done.

Futures accounts, which mtm daily might issue a margin call that occurs faster than the clearance time on a bank wire. Most bank wires do not really acknowledge deposit into one's account on the same day it is received. Imagine being hit with a margin call at 10am EST/9amCST upon market open, and having the noon time deadline for Fed Wires to originate from their institution. You would be in technical default and suffer fines, penalties and other credit damaging events, although you technically have the balance available.

Given that reality of the scenario of returning monies withdrawn from a trading account, add to that, whatever it was you wanted to do with those funds. Certainly you weren't suggesting that you could function in a mortgage banker's scenario just by shorting bond futures, which require roll over to current months, and maintenance margins, and placing those funds in illiquid assets such as real estate?

were you?
 
Not bond futures, but rather the bonds themselves. I wasn't actually considering funding a mortgage that way.. I am just trying to figure out how the mortgage banks do it, and figure out how it works in general. If you short/long the bond futures, you don't pay/receive interest payments as far as I know. It is just figured in to the futures price.

One thing I was looking at, is I believe called the carry trade. Short the 10-year notes, use the funds to buy the 30-year bonds, and make the difference in interest rates. Here, I am guessing the margin requirements would probably be a major factor.
 
mortgage bankers are allowed to originate loans, these loans, upon meeting certain qualifications (credit worthiness, property valuation, flood certifications and all such) are packaged together into Asset Back Securities called Mortgage Backed Bonds.

Ginnie Mae, Freddie Mac, Fannie Mae and a limited few others (VA loans, etc.) institutions have helped establish performance qualifications for the original securities (actual property loans) which comprise each 1million dollar bond (10 mortgages of $100,000; 4 mortgages of $250,000, etc.).

These institutions have set performance criteria which allows investors seeking higher credit returns other than corporate backed bonds can trust, hence making the market in the mortgage business. The originators that package these bonds then get funding in return and can either keep their profits and go else wheres or continue in the business of creating mortgage backed bonds.

perhaps that was overly simplistic or repetitive, however it should give you some indication to the origination process.

trading upon profits made, whether turning around and using bonds created as a result of mortgages or other corporate backed bonds is another issue which should not be confused with the first steps discussed.
 
Quote from CaroKann:
I got thinking about this while trying to figure out how, exactly, a mortgate bank can tie the loan rate to the 30 year t-bond.. maybe it is just correlated.
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These days the mortage banks usually enter into CMTR or LIBOR CMS swaps to obtain a consistent source of funding.

Quote from CaroKann:
Is it possible for an individual to short a bond and get access to the cash?
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long bond + short cash = repo
short bond + long cash = reverse repo

I do not know about individual (a human being), but as far as I know all dealers offer these services

Quote from CaroKann:
And possibly even create their own mortgage?
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?
 
Quote from sle:



These days the mortage banks usually enter into CMTR or LIBOR CMS swaps to obtain a consistent source of funding.


long bond + short cash = repo
short bond + long cash = reverse repo

I do not know about individual (a human being), but as far as I know all dealers offer these services


?
More...


were you a Muni trader?
 
Quote from limitdown:

were you a Muni trader?
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IR derivatives, mainly IR options. muni derivatives as well as mortgage derivatives are very rich products, lot's of flavor - fun to trade.
 
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