Mortgage-Bond Yield Spreads Tighten on Thursday

Print

Email

Reprints

Comment

Twitter

LinkedIn

Facebook

Google+

Yields on government-backed mortgage securities narrowed to the least relative to benchmark debt in more than two years, cushioning the blow of a slump in Treasuries for homebuyers.

Yields on benchmark Fannie Mae-guaranteed 30-year bonds narrowed to within 0.92 percentage point of an average of those on five- and 10-year Treasuries as of 1:25 p.m. on Thursday in New York, down from 0.99 percentage point on Dec. 16, according to data compiled by Bloomberg. That would be the lowest closing level since October 2012.

Spreads are narrowing because a rise in overall yields is bringing in new buyers reluctant to invest in the debt below certain thresholds, according to Credit Suisse Group AG strategist Mahesh Swaminathan. The yield increase has also reduced concerns that homeowner refinancing would accelerate after lending rates fell below 4% this month, he said.

“This is a return to the mortgage-friendly environment that existed prior” to the previous week or so, when rates declined past prior 2014 lows seen in October, Swaminathan said in a telephone interview. “The path of least resistance is probably more tightening.”

Refinancing damages investors in mortgage bonds trading for more than face value by returning their principal faster at par.

Yields on the benchmark 10-year Treasury note rose the most in 17 months today after Federal Reserve Chair Janet Yellen suggested yesterday that a pledge to be “patient” on interest rates may translate into an increase by the middle of next year.

Absolute yields on the Fannie Mae current-coupon securities, which guide loan rates, rose to 2.86% today, the highest since Dec. 9, according to Bloomberg data. Two days ago, they’d fallen to 2.78%, the lowest since May 2013.

The average rate offered on typical 30-year mortgages this week fell to 3.8%, the lowest since May 2013, according to Freddie Mac surveys.

Returns in the $5.5 trillion market for mortgage securities guaranteed by taxpayer-backed Fannie Mae and Freddie Mac or U.S.-owned Ginnie Mae have totaled 5.9% this year, according to Bank of America Merrill Lynch index data.

The notes have returned 0.55 percentage point more than similar-duration U.S. government debt, the data show. The securities lost 1.4% last year amid anticipation of the central bank ending its bond buying, their first annual losses since 1994.

Article source: http://www.nationalmortgagenews.com/news/secondary/mortgage-bond-yield-spreads-tighten-on-thursday-1043402-1.html

Leave a Reply

WP2Social Auto Publish Powered By : XYZScripts.com
Bunk Beds