How do I make a Short Term bet on higher Mortgage Rates?

Water Cooler Investing
#21

Consider shorting a couple of 10-yr futures contracts; they move better and have more volume than the ETFs you’ve mentioned, less ETN bank risk, no ETF/ETN fees, respond to Yellen’s mouth, and don’t experience Theta decay - although I would have to say that I’m glad I went long more bonds in my portfolio a few months ago (now watch me eat my words). To be sure: disadvantages would include an unlimited risk profile and the need to be rolled over but that depends on your time frame.

However, I’d be more concerned about having bought too much house if just 50 bp’s will cause you to “get creamed” and not be able to afford the property. Perhaps it would be better to reconsider the property purchase price rather than hedging for increased rates.

Disclosure: I am from a medical, not finance, background and haven’t read Derivatives and Alternative Investments book yet.

#22

The banks sell them because of the interest rate risk. Additionally, selling them allows them to originate more (a lot of mortgage banking is fee related). The bank will book loans that can’t be sold (jumbo, improper docs, etc) and maybe some other desirable ones. But some banks will sell and maintain the servicing (so you don’t get the letter, but your still in a FNMA MBS somewhere securitzed).

#23

What changes when you do read Derivatives and Alternatives? Similar to staying at a Holiday Inn Express?

#24

So what you really want is trap insurance, I see.