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Mortgage-Bond Yields Climb After Fed Maintains Buying
Program By Jody Shenn June 24 (Bloomberg) -- Yields on Fannie Mae and Freddie Mac mortgage securities climbed after the Federal Reserve left its $1.75 trillion bond-purchase program unchanged, signaling that interest rates on new home loans may increase. Yields on
Washington-based Fannie Mae’s current-coupon 30- year fixed-rate mortgage bonds
climbed 0.03 percentage point to 4.72 percent as of 4:40 p.m. in The central bank, after a two-day meeting, refrained from saying in a statement it would adjust its buying plan. Some investors and analysts thought the Fed might announce plans to “co-mingle” its planned purchases of as much as $1.25 trillion of mortgage bonds and $300 billion of Treasuries, or to extend the timing of its buying of Treasuries, said Mahesh Swaminathan, a mortgage-bond analyst for Credit Suisse Group in New York. “Those were some of the ideas that were being tossed around, and with what was actually announced, in my mind that means we’re heading for higher rates” and higher yields on mortgage bonds relative to government notes, he said in an interview after the Fed statement. “And to the extent rates go back up it has the potential to derail the housing recovery.” The difference between yields on the Fannie Mae bonds and 10-year Treasuries contracted 0.04 percentage point today to 1.03 percentage points, Bloomberg data show. The gap, which grew to as much as 2.38 percentage points last year, contracted to 0.7 percentage point on May 22, the lowest since 1992. ‘Still Low’ The average rate on a typical 30-year fixed mortgage soared to 5.59 percent earlier this month, the highest since November, before slipping to 5.38 percent in the week ended June 18, according to McLean, Virginia-based Freddie Mac. In April, the rate fell to 4.78 percent, the lowest on record, after the Fed’s buying succeeded in reducing mortgage- bond yields. Its plan also includes purchases of as much as $200 billion of so-called agency debt, the corporate borrowing of Fannie Mae, Freddie Mac and Federal Home Loan Bank system. At Equity Now Inc., the
jump in rates in late May and early June “was as much an event as Lehman was
for the economy,” said Michael
Moskowitz, the president of the New York-based home lender, referring to
the September collapse of Lehman Brothers Holdings Inc. that roiled financial
markets. Still, volumes have improved somewhat since then, he said. “We’ve changed our
marketing from: ‘Lowest rates since the 1960s’ to basically, ‘Rates are still
low,’” he said today in a telephone interview. Last Updated: June 24, 2009 17:48 EDT |
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