The rumor regarding a massive government-sponsored refinancing of over $1 trillion in loans continued to play in the market until it was shut down by a US Treasury official Thursday. The conjecturing, helped along by a blog on Reuters, spooked the market for high-coupon loans (at this point, anything 5.25% and above), and could certainly be construed as a political gambit. Investors, of course, are counting on that high yield for a few years, so a made-up threat of a huge refinance drove prices down by almost .5 in some areas.

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