i just have a quick question for you joey. if anyone else knows the answer, plz do respond. I am trying to model the fallout rate on mortgage commitments. i have been given the following data: A) the ratio of the 30 day BA rate to the 90 day BA rate B) the ratio of the CORRA (Canadian Overnight Repo Rate Average) to the 3 month OIS (Overnight Index Swap). these two variables A and B are supposed to be factors that affect the fallout rate. any idea how these two ratios are should be affecting the fallout rate? is it because the lower the ratio of 30 day BA to 90 day BA is, then this means we expect higher rates in the future and thus less chance of fallout? whereas the higher the ratio, this means we expect lower rates in the future and thus more chance of fallout? and the same thing with the other ratio, if the ratio of the CORRA to the OIS is high, we expect lower rates in the future and thus more chance of fallout. does this sound right to yuou? any thoughts? Also, I’m confused why the BA ratio does take credit risk into account, but the CORRA to OIS ratio does not. thanks so much!
This is getting a little Canadian-mortgage specific for my expertise, but a) Youor banker’s acceptance ratio, as you say, is about expectations for short-term interest rates rising. I guess that if people expect money market rates to rise then they also expect mortgage rates to rise so fallout would be less (doesn’t sound all that significant to me, but I could be convinced) b) CORRA/OIS About the same except it’s overnight rates versus expected average overnight rates. c) Banker’s acceptances incorporate credit risk, because if the importer can’t pay the bank that wrote the thing has to pay. That means that when credit spreads are high, banker’s acceptance rates will trade at a higher spread than equivalent govt debt.