Thornburg Mortgage Bonds
Thornburg mortgage is the
second largest independent mortgage
lender in the USA. Due to the
world mortgage crisis Thornburg
Mortgage bonds is facing great
difficulty as it tries to reach
its target to balance out hundreds
of millions of dollars worth
of losses that results from
defaulted mortgages.
Thornburg mortgage
bonds specialize in mortgages
to high net worth clients who
have prime mortgages however
call-backs on mortgages from
its borrowers have seen drastic
effects on the company with
stocks plunging almost 90% at
a time. This is a signal of
inevitable doom for Thornburg
Mortgage Bonds. This seize back
of the billions of dollars of
collateral had triggered a fire
sale on their bonds.
A lot of analysts have said
that Thornburg did not have
the capital
to support itself through
the impending crisis. It had
relied mostly on short-term
mortgage bonds for re-investment
income and had used their bonds
and loans for funding collateral.
This plunge in value of collateral
was what had triggered banks
and financial institutions to
issue callback on its mortgages.
Thornburg Mortgage Bond Laddering
Strategy
Thornburg’s primary
mortgage bond strategy was to
ladder their portfolio. In hopes
of returning a
respectable rate of return
while reducing risk they built
a portfolio that have bonds
with staggering maturities so
that an even portion of their
investments pay off every year
instead of waiting for large
lump sums after a long period
of time.
This is a uniform trade-off
of risk and return. Income that
comes in from matured bonds
will then be used to purchase
other long term (high yielding)
bonds hence creating a bond
ladder. This laddering technique
has been proven to outperform
other because they are able
to take advantage of the price
appreciation that comes with
maturing bonds and at the same
time use capital from maturing
low-return bonds to re-invest
into longer term high yielding
bonds.
The main goal of laddering
their bond portfolio was to
get a consistent return that
accounted for varying interest
rate fluctuations through a
time period. Spreading
purchasing and cashing in bonds
over a long period of time
by using a laddering technique
allows long-term favorable returns
that is not under pressure of
varying market prices and investment
risk. The goal of Thornburg
Mortgage bonds was to aim for
conservative 6% to 10% returns.
Thornburg Mortgage Bond Selection
Strategy
Thornburg Mortgages are famous
for targeting low risk borrowers.
Most mortgage bonds come with
the impending chance that mortgage
loans are cut short by full
payments made early which consequently
will affect the payments on
the principal. To reduce the
risk of uncertainty Thornburg
Mortgage Bonds are generally
non-callable bonds or bonds
that have conditions that make
it callable only after a few
years of maturity.
Other strategies used by Thornburg
Mortgage Bonds include independent
credit analysis. This means
Thornburg no longer relies on
outside sources of information
on credit scores and can get
more accurate results which
mean they can get bonds with
higher intrinsic values for
a lower cost. Thornburg also
runs geographic concentration
and sector rotations on their
bond markets for diversifying
risk.
http://www.thornburginvestments.com/research/articles/laddering_303.asp
http://www.thornburginvestments.com
http://www.finfacts.ie/irishfinancenews/article_1012845.shtml
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Copyright
2008