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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
2222 Kalakaua Avenue

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Honolulu HI 96815

Phone: 808.791.9888
Fax: 808.791.9898
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Phone: 215.932.0312

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Phone: +03.5778.7807

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The latest implied forward rate forecast from Kamakura Corporation shows projected 10 year U.S. Treasury yields down 0.17% to 0.04% from last week while fixed rate mortgage yields are 0.12% to 0.05% 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 2.76% at Thursday’s close (down 0.16% from last week) to 3.203% (down 0.17% from last week) in one year.  The 10 year U.S. Treasury yield in ten years is forecast to reach 4.676%, 4 basis points higher than last week.  The 15 year fixed rate mortgage rate is forecast to rise from the effective yield of 3.64% on Thursday (down 0.050% from last week) to 4.129% (down 0.093% from last week) in one year and 6.17% in 10 years, down 0.125% from last week.

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The telecom sector world-wide has seen enormous disruption as new service providers challenge the former monopolies of land-line-based providers of telecommunications services.  In recent notes, we have highlighted the bonds of Verizon Communications Inc. (VZ) and Sprint Corporation (S), which has seen a major investment from SoftBank (SFTBF.PK)(SFTBY.PK) of Japan and a significant drop in default probabilities upon announcement of a new distribution agreement with CostCo (COST). In this note, we focus on Telecom Italia S.p.A. (TI), which has seen more volatility in its credit quality in recent years than the vast maturity of telecommunications firms.

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In a note last week, we discussed some key issues about sovereign defaults as we approach another Congressional battle on the debt ceiling for the United States of America.  In this note, we compare the data, techniques and accuracy of sovereign and public firm default models.  Modeling corporate default is much easier, at least in the short run, than modeling sovereign defaults.  This note explains why in a statistical sense.  From a practical perspective, Kamakura senior research fellow Prof. Jens Hilscher (Brandeis University) put it simply: “Corporates default because they have to.  Sovereigns default because they want to.”  As the U.S. approaches its all-too-frequent Congressional confrontations on the debt ceiling, it is clear that the U.S. will default in 2013 only if a majority of one house of Congress “wants to.”

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Ford Motor Company (F) was one of the thirty most heavily traded corporate bond issuers in the U.S. bond market on September 13, 2013. This note uses the default probabilities and bond spreads of Ford Motor Company to measure the relative reward-to-risk ratio on both firm’s bonds. A total of 146 trades were reported on 15 fixed-rate non-call bond issues of Ford Motor Company with trading volume of $27.3 million.  After eliminating bad data, we used 144 trades on 14 bond issues in this note. We leave for another day an analysis of spread on the bonds of other legal entities associated with Ford Motor Company.

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The latest implied forward rate forecast from Kamakura Corporation shows projected 10 year U.S. Treasury yields differing -0.07% to 0.03% from last week while fixed rate mortgage yields varied by -0.01% to 0.08%.  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 2.92% at Thursday’s close (down 0.06% from last week) to 3.374% (down 0.06% from last week) in one year.  The 10 year U.S. Treasury yield in ten years is forecast to reach 4.639%, 1 basis point lower than last week.  The 15 year fixed rate mortgage rate is forecast to rise from the effective yield of 3.69% on Thursday (down 0.001% from last week) to 4.222% (down 0.006% from last week) in one year and 6.29% in 10 years, up 0.038% from last week.

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