Not Quite Sure What This Means...
I just received notice from my broker that some Fannie Mae bonds that I bought several years ago are being called. These were bonds that have a 6.5% coupon, due in 2037, and that cost me slightly below par. Since they are redeeming the bonds for the full par value, that means that I get 1-2% capital gain, and I earned 6.5% interest each year the last several years. That was a decent return for a very low risk investment.
That the bonds are being called would indicate that the underlying mortgages have been paid off--perhaps because of a refinance of the loan, or the sale of the house. Either way, this is probably a good thing for the borrowers, and probably a good sign for the economy.
I am expecting interest rates to rise--perhaps quite catastrophically--in the next year or two, so now I have to figure out where to invest this money in the meantime that gets a decent return, and yet doesn't lock me into the current not very impressive interest rates.
That the bonds are being called would indicate that the underlying mortgages have been paid off
ReplyDeleteOr perhaps the underlying mortgages have been foreclosed, and the Federal Government is bailing out Fannie Mae as it has promised to do.
In most of these Federal bailouts, the creditors (like you) are the beneficiary of the bailout money. (Except in the case of GM and Chrysler.) Congratulations on getting a slice of the bailout pie.