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An Introduction to Derivative Securities, Financial Markets, and Risk ManagementAdvanced Financial Risk Management, 2nd ed.

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Kamakura Corporation Named to World Finance 100

September 19, 2014
Primary Mortgage Yields Rise 0.11% and 30 Year Fixed Rate Mortgage Servicing Values Rise 0.36% This Week

September 13, 2014
Comparing the Marginal Cost of Funds for Berkshire Hathaway with BAC and WFC

September 11, 2014
Primary Mortgage Yields Rise 0.02% and 30 Year Fixed Rate Mortgage Servicing Values Rise 0.13% This Week

September 10, 2014
Bank of America: A Pre-Stress Test Credit Risk Report Shows Dramatic Progress

September 9, 2014
Bank of America and Its High Marginal Cost of Funds

September 8, 2014
Royal Dutch Shell Bond Issue Leads the 20 Best Value Bond Trades with Maturities of 1 Year or More

September 4, 2014
Forward 1 Month T-bill Curve Twists, Jumps 0.16% to Peak at 3.33% in February, 2021

August 26, 2014
Transfer Pricing and Valuation Yield Curves without Swap Data: A KeyBank and KeyCorp Example

August 18, 2014
More Evidence on the Funding “Subsidy” of the Too Big to Fail Banks

August 14, 2014
Mortgage Servicing Rights Values Close Mixed for the Week as Current and Forward Mortgage Rates Drop 0.03%

August 13, 2014
Liquidity At Risk – A stochastic look at cashflows

August 12, 2014
Five of Seven Regional Banks Trade at Credit Spreads Better than the Too Big to Fail Banks

August 12, 2014
Kinder Morgan Energy Partners Leads the 20 Best Value Bond Trades with Maturities of 10 Years or More

August 11, 2014
Measuring the Funding Costs of the Too Big to Fail Banks:
The U.S. Dollar Cost of Funds Index™


August 6, 2014
Credit Spreads and Default Probabilities: A Simple Model Validation Example

August 5, 2014
Vodafone Group PLC: Default Risk is Down Sharply But Value Ranks in the Bottom 10% of Bonds

July 15, 2014
Brazil, Italy, Spain, Credit Default Swaps and the
European Commission Short Sale Ban, 2010-2014


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Kamakura Corporation projections for U.S. Treasuries and fixed rate mortgages this week show that the implied forward yields for 15 year fixed rate mortgages rise from a current effective yield of 3.442% (up 0.11% from last week) to 5.548% in 10 years, up 0.094% from last week. The all-in yield on 30 year fixed rate mortgages was up 0.11% at 4.272%, after the rise in long term Treasury yields of 0.06% to 0.10% at maturities from 5 to 30 years. The value of net servicing for 30 year fixed rate mortgages rose 0.36% this week. Here are the highlights of this week's implied forecast:

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On September 9, we compared the marginal cost of wholesale funding for Bank of America Corporation (BAC) with the U.S. Dollar Cost of Funds IndexTM, a proxy for the marginal cost of funding for the 4 largest U.S. deposit-taking banks. We found that Bank of America’s marginal cost of funds was 0.134% higher than the composite of the 4 “Too Big to Fail” banks and about 0.30% higher than Wells Fargo & Co. (WFC). A number of readers asked “what does this mean to Warren Buffett?” Accordingly, in this note we compare the marginal cost of funding for two Berkshire Hathaway (BRK.A)(BRK.B) legal entities with the U.S. Dollar Cost of Funds Index, Bank of America Corporation, and Wells Fargo & Co. We keep tongue firmly in cheek for the entirety of this exercise.

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Kamakura Corporation projections for U.S. Treasuries and fixed rate mortgagesthis week show that the implied forward yields for 15 year fixed rate mortgages rise from a current effective yield of 3.332% (up 0.02% from last week) to 5.454% in 10 years, up 0.029% from last week. The all-in yield on 30 year fixed rate mortgages was up 0.02 at 4.162%, after the rise in long term Treasury yields of 0.06% to 0.09% at maturities from 3 to 30 years. The value of net servicing for 30 year fixed rate mortgages rose 0.13% this week. Here are the highlights of this week's implied forecast:

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Yesterday we showed that the marginal cost of funding for Bank of America Corporation (BAC) was about 0.30% higher than the marginal cost of funding for Wells Fargo & Co. (WFC) and 0.134% higher than the composite U.S. Dollar Cost of Funds IndexTM. Bank of America Corporation was the 4th most heavily traded bond issuer yesterday and ranked 18th among all reference names in the credit default swap market last week. We last analyzed default risk at Bank of America Corporation on June 11, 2014.

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Forty years ago I spent two summers working with an MIT-educated genius named Wm. Mack Terry, head of the Financial Analysis and Planning Group at Bank of America in San Francisco. One of the many lessons of that experience is that banking is a brutal, efficiency driven business where the competitors with the lowest marginal costs create the most shareholder value. Those costs can be split into operating costs and the marginal costs of funding. In this note we compare the marginal cost of funding for Bank of America Corporation (BAC) with the U.S. Dollar Cost of Funds IndexTM, which uses observable bond pricing for the 4 largest deposit-focused banks in the United States.

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