Mortgage-Bond Yields Soar, Jeopardizing Fed’s Housing Effort

天真的冷酷

May 27 (Bloomberg) -- Yields on Fannie Mae and Freddie Mac mortgage bonds rose for a fourth day, after yesterday for the first time exceeding where they stood before the Federal Reserve announced it would expand purchases to drive down loan rates.

Yields on Washington-based Fannie Mae’s current-coupon 30- year fixed-rate mortgage bonds climbed to 4.3 percent as of 10:25 a.m. in New York, the highest since March 10 and up from 3.94 percent on May 20, data compiled by Bloomberg show.

The Fed, seeking to use lower home-loans rates to stem the housing slump and bolster consumers, said March 18 it would increase its planned purchases of so-called agency mortgage bonds by $750 billion, to as much as $1.25 trillion, and start buying government notes. Rising mortgage-bond yields, driven higher in part by climbing Treasury rates, means the Fed now “faces a challenge to its ability to sustain low mortgage rates,” according to Jeffrey Rosenberg at Bank of America Corp.

“Market participants may be asking themselves the same question as Scorpio in ‘Dirty Harry’: ‘Do I feel lucky?’ ” Rosenberg, the bank’s head of credit strategy research in New York, wrote in a report yesterday, referring to a character in the 1971 Clint Eastwood film who may be shot.

Crashing U.S. home prices have fueled the first global recession since World War II. The Fed may need to again adjust its mortgage-bond buying, after initially announcing the program in November, or boost its purchases of Treasuries, Rosenberg said. Home prices in 20 major metropolitan areas fell more than forecast in March, declining 18.7 percent from a year earlier, according to an S&P/Case Shiller index released yesterday.

Decline in Rates

The average rate on a typical 30-year fixed mortgage was 4.82 percent in the week ended May 21, according to a survey by McLean, Virginia-based Freddie Mac. Rates are down from 6.46 percent in late October, and up from a record low of 4.78 percent in the first and last weeks of April.

Yields on agency mortgage bonds are now guiding rates on almost all new U.S. home lending in the wake of the collapse of the non-agency market in 2007 and retreats by banks. The almost $5 trillion market includes securities guaranteed by government- controlled Fannie Mae and Freddie Mac and bonds of government- backed loans guaranteed by federal agency Ginnie Mae.

“Capacity constraints” at lenders dealing with increased mortgage applications since December have caused the rates offered to borrowers to be higher in relationship to the bonds yields than in the past, according to Bank of America and Credit Suisse Group analysts. That suggests loan rates may not initially rise as yields do.

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sniffer

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