Bonds News

Lehman Brothers moves to MBS overweight

NEW YORK, March 12 (Reuters) - Lehman Brothers Holdings Inc LEH.N said it raised its U.S. mortgage-backed securities recommended allocation to an overweight position.

The Wall Street investment bank said late Tuesday it raised its allocation from a 3 percent underweight to a 5 percent overweight in response to the Federal Reserve’s action to inject liquidity into credit markets.

The new Term Securities Lending Facility, or TSLF, is the Federal Reserve’s latest proposal that contains provisions especially targeted to mortgages and operates among primary dealers instead of depositary institutions.

Lehman said the Federal Reserve actions promote greater liquidity and will be followed by another round of easing at the next Federal Open Market Committee meeting on March 18, which will create a base for improved market sentiment.

Another wave of write-downs with first-quarter earnings risks further valuation backlashes, but central banks continue to respond with highly surgical emergency liquidity measures, Lehman said.

“And each additional operation along with the cumulative effects of past efforts shortens the timeline to more normal capital market conditions,” Lehman said.

With U.S. MBS spreads still at all-time peaks, Lehman Brothers said it recommends beginning to increase mortgage exposure ahead of that indefinite liquidity normalization.

Along with municipal bonds, leveraged loans, and other portions of the investment-grade securitized arena, notably commercial mortgage-backed securities, the liquidity dislocation is well overdone, the company said. (Reporting by Julie Haviv; editing by Leslie Adler)