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Don founded Kamakura Corporation in April 1990 and currently serves as its chairman and chief executive officer where he focuses on enterprise wide risk management and modern credit risk technology. His primary financial consulting and research interests involve the practical application of leading edge financial theory to solve critical financial risk management problems. Don was elected to the 50 member RISK Magazine Hall of Fame in 2002 for his work at Kamakura. Read More

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Kamakura Corporation
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Honolulu HI 96815

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Fax: 808.791.9898
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The latest implied forward rate forecast from Kamakura Corporation shows projected 10 year U.S. Treasury yields down 0.15% to 0.25% from last week while fixed rate mortgage yields are 0.06% to 0.14% lower.  Mortgage yields, determined by the Monday through Wednesday weekly survey of the Federal Home Loan Mortgage Corporation, lag Treasury movements simply because of the 3-day yield calculation used in the Primary Mortgage Market Survey ®.  The 10 year U.S. Treasury yield is projected to rise from 2.75% at Thursday’s close (down 0.15% from last week) to 3.154% (down 0.18% from last week) in one year.  The 10 year U.S. Treasury yield in ten years is forecast to reach 4.497%, 25 basis points lower than last week.  The 15 year fixed rate mortgage rate is forecast to rise from the effective yield 3.64% on Thursday (down 0.06% from last week) to 4.137% (down 0.08% from last week) in one year and 6.180% in 10 years, down 0.13% from last week.

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The telecommunications sector around the world is experiencing enormous disruption. This note uses the default probabilities and bond credit spreads of AT&T Inc. (T) to measure the reward-to-risk ratio on the company’s bonds.  Today’s study incorporates AT&T bond price data as of August 26, 2013. A total of 355 trades were reported on 25 fixed-rate non-call bond issues of AT&T with trade volume of $109.6 million.  After eliminating one bond issue with flawed data, we analyze the remaining 349 trades for $109.5 million in principal amount in this note.

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The management changes at Citigroup Inc. since the events of the credit crisis have been very dramatic, perhaps more so than for any of the other firms we have analyzed in recent weeks. We did an extensive analysis of the credit crisis history of Citigroup borrowings from the Federal Reserve and the events leading up to those borrowings on June 6, 2011. Citigroup Inc. consolidated borrowings during the credit crisis peaked at $24.2 billion on March 5, 2009, and the firm had borrowings outstanding on 211 days according to Federal Reserve reports. Today’s study incorporates Citigroup bond price data as of August 23, 2013 to analyze the potential risk and return to bondholders of Citigroup Inc., which announced a tender offer on August 14, 2013 for 7 different bond issues with total principal outstanding of $11.5 billion. The offer expires on September 11, 2013.

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Today’s forecast for U.S. Treasury yields is based on the August 22, 2013 constant maturity Treasury yields that were reported by the Board of Governors of the Federal Reserve System in its H15 Statistical Release at 4:15 p.m. Eastern Daylight Time August 23, 2013. The forecast for primary mortgage market yields and the resulting mortgage servicing rights valuations are derived in part from the Federal Home Loan Mortgage Corporation Primary Mortgage Market Survey ® made available on the same day.

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We first analyzed default risk at Bank of America Corporation (BAC) on July 8, 2013. On that day, the one year default probability for the firm was 0.18% and the ten year annualized default probability was 0.49%. We also did an extensive analysis of the credit crisis history of consolidated Bank of America borrowings (including borrowings of Countrywide Financial and Merrill Lynch) from the Federal Reserve and the events leading up to those borrowings on May 25, 2011.

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