Fannie and Freddie's debt spread

Just read an article about Freddie's 5-yr debt spread over treasury on WSJ.
It's now at 113 bps, a record. Freddie is paying about 4.17% on the debt,
but current market mortgage rate for conforming 5-yr is around 6.125%
for the best borrowers. This rate is higher than one year ago even though
Fed rate was 325 bps higher at that time. This means that Freddie/Fannie
are having higher profit margins on loan originated now (also with
much better underwriting standards)

There will be more short-term (1-2 years) pain in the real estate market
due to the high mortgage rate. But this will be necessary to bring
everything back on track in the long run.

Inflation? what inflation?

The two biggest component of consumer price index are housing and wages.
They are not increasing. Banks are losing money hands over fist and have
less money to lend. Then you have money supply contraction.

http://www.telegraph.co.uk/money/main.jhtml?xml=/money/2008/08/19/cnusecon119.xml

Gary Shilling and long bonds

Check this out:
http://www.agaryshilling.com/agary.html

He rided the long-bond bull market all the way from the 1970s.

Also did you noticed that after June 2002 the 30-year treasury never went
back over 5.5% ? This was six months after China joined WTO.

Real men trade long bonds

Here's an old article about the merit of investing in long bonds (treasury with
maturity close to 30 years).
http://www.safehaven.com/article-3081.htm

If you use a strategy of investing in 25-year zero coupon bond since the
beginning of 1981 and every year swap the old bond into a new 25-year zeros,
you would have an annual return of roughly 21.8% from Oct 1981 to April
2005, handily beating the return of S&P index with reinvested dividend.

The best vehicle to gain exposure to long bonds for retail investors is 'TLT',
the Exchange Traded Fund that mirrors the return of the Lehman Brother
20+ year treasury index.