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Meeting of the Federal Open Market Committee
March 20-21, 2007 Presentation Materials -- Text Version
Pages 180 to 196 of the Transcript
Appendix 1: Materials used by Mr. Dudley
Class II FOMC -- Restricted FR
Page 1
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(1)
Title: 60+ Days Delinquency Rates for Mortgages: FRM versus ARM
Series: Prime adjustable rate mortgages, prime fixed rate mortgages, subprime adjustable rate mortgages, and
subprime fixed rate mortgages
Horizon: March 2004 - December 2006
Description: Delinquency rates for subprime adjustable rate mortgages have increased more quickly than subprime fixed rate mortgages in the second half of 2006.
Source: Mortgage Bankers Association
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(2)
Title: 60+ Days Delinquencies by Vintage (Subprime ARMs)
Series: Level of 60+ day delinquencies on subprime mortgages backing MBS pools. Shows delinquency levels
according to year in which subprime MBS was issued.
Horizon: 2001 to 2006
Description: Delinquency rates for mortgages originated during 2006 are increasing much faster than those
of recent years.
Source: Intex
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(3)
Title: Spread Widening in the ABX* Migrated Up the Capital Structure
Series: BBB, BBB-, AAA, AA, A
Horizon: November 13, 2006 - March 16, 2007
Description: The deterioration in the quality of subprime mortgage credit has led to a sharp widening in
credit spreads for the ABX indices.
* ABX Series 06-02 Return to text
Source: UBS
Page 2
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(4)
Title: Spread Widening in ABX, then CDS, and Finally Cash
Series: ABS CDS BBB-, ABX 06-2 BBB-, and Cash ABS BBB-
Horizon: September 1, 2006 - March 9, 2007
Description: The spread widening in the ABX index was more pronounced than in either the underlying
collateralized debt obligations or the asset-backed securities.
Source: Merrill Lynch
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(5)
Title: Subprime Originators in 2006 by Volume
Series: Wells Fargo, HSBC, New Century*, Countrywide,
Citigroup, WMC (GE), Fremont*, Ameriquest*, Option One (H&R Block)*, First Franklin (Merrill Lynch), Top 11-20 Originators,
and remaining originators
Horizon: 2006
Description: Several of the large monoline originators have either discontinued subprime lending, are
distressed, or up for sale.
* Firms highlighted in red have discontinued subprime lending, are distressed, or up for sale. Return to text
Source: Inside Mortgage Finance
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(6)
Title: Evolution of Equity Growth Estimates for 2007
Series: S&P 500 Top-Down and Bottom-Up Growth Estimates
Horizon: January 1, 2007 - March 2, 2007
Description: Bottom-up S&P equity growth estimates have been converging downward towards the
top-down growth estimates which have not changed significantly.
Source: Thompson Financial
Page 3
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(7) Comparison of Weekly Increases in VIX Index
Event | VIX change | BB spread change | BB change per 100 bp VIX change |
---|---|---|---|
Week of 02/27/07 | 848 bp | 27 bp | 3.2 bp |
Average of 10 Largest Weekly Increases | 796 bp | 21 bp | 2.7 bp |
Source: Bloomberg and Merrill Lynch
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(8)
Title: Global Currency Movements Against the Japanese Yen
Series: AUD, NZD, EUR, GBP, and USD
Horizon: February 19, 2007 - March 16, 2007
Description: These higher yielding currencies appreciated the most during the week leading up to the
February 27 sell-off, depreciated the most during the week of February 27, and have recovered the most against the yen over
the past two weeks.
Source: Bloomberg
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(9)
Title: Net Long IMM Non-Commercial Speculative Positions Relative to Open Interest
Series: YEN, USD, EUR, GBP, AUD, NZD
Horizon: February 20, 2007 - March 6, 2007
Description: The net short positions as a percentage of the overall open interest in the Japanese yen
have dropped since February 27, 2007. Net long positions in the British Pound and Australian dollar have also dropped since
February 27, 2007.
Source: Bloomberg
Page 4
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(10) Correlation of Daily Price/Yield Changes
Variables | 2YR Yield | 10YR Yield | S&P | USD/JPY | Swap Spreads | VIX | Merrill-HY |
---|---|---|---|---|---|---|---|
2YR Yield | |||||||
10YR Yield | 0.94 [blue] | ||||||
S&P | -0.24 | -0.21 | |||||
USD/JPY | 0.39 | 0.41 | -0.26 | ||||
Swap Spreads | 0.41 | 0.41 | -0.33 | 0.17 | |||
VIX | 0.00 | 0.00 | -0.82 [blue] | 0.16 | 0.22 | ||
Merrill-HY | -0.71 [blue] | -0.71 [blue] | 0.10 | -0.37 | -0.40 | 0.13 |
Source: Bloomberg
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(11) Correlation of Daily Price/Yield Changes
Variables | 2YR Yield | 10YR Yield | S&P | USD/JPY | Swap Spreads | VIX | Merrill-HY |
---|---|---|---|---|---|---|---|
2YR Yield | |||||||
10YR Yield | 0.98 | ||||||
S&P | 0.87 | 0.82 | |||||
USD/JPY | 0.91 | 0.87 | 0.89 | ||||
Swap Spreads | -0.67 | -0.59 | -0.78 | -0.67 | |||
VIX | -0.88 | -0.84 | -0.97 | -0.84 | 0.80 | ||
Merrill-HY | -0.88 | -0.81 | -0.83 | -0.86 | 0.66 | 0.81 |
Source: Bloomberg
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(12)
Title: 2007 Fed Funds Future Curves
Series: Fed funds future curve as of 10/25/2006, 12/12/2006, 1/31/2007, and 03/16/2007
Horizon: October 25, 2006 - March 16, 2007
Description: Since the January 31 FOMC meeting, near-term policy rate expectations have shifted with
market participants now expecting a modest reduction in the federal funds rate target by August 2007.
Source: Bloomberg
Page 5
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(13)
Title: Eurodollar June 2008 - 2007 Calendar Spread
Series: Eurodollar June 2008 - 2007 calendar spread
Horizon: May 1, 2006 - March 16, 2007
Description: Longer term policy rate expectations have shifted sharply since the January 31 FOMC
meeting as the market is pricing in a larger move towards easing.
Source: Bloomberg
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(14)
Title: Distribution of Expected Policy Target Among Primary Dealers Prior to January 31 FOMC Meeting
Series: Dealer expectations for policy target rate by quarter, average forecast for policy target by
quarter, and market rate for policy expectation by quarter as of 1/22/2007
Horizon: Q2 2007 - Q3 2008
Description: There is more dispersion in regards to where dealers expect the policy rate to be in Q1,
Q2, and Q3 2008.
Source: Dealer Policy Survey
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(15)
Title: Distribution of Expected Policy Target Among Primary Dealers Prior to March 21 FOMC Meeting
Series: Dealer expectations for policy target rate by quarter, average forecast for policy target by
quarter, and market rate for policy expectation by quarter as of 3/13/2007
Horizon: Q2 2007 - Q4 2008
Description: As compared to the January 2007 policy survey, there is less dispersion around where dealers
expect policy rates to be in Q2, Q3, and Q4 2008.
Source: Dealer Policy Survey