June 10 (Bloomberg) -- Some of the U.S. mortgage bonds at the center of the yearlong credit crisis are slipping toward new lows, as climbing gas prices, unemployment and interest rates deepen concern that homeowner defaults will increase.

The benchmark Markit ABX index linked to the last-to-be- repaid of originally AAA rated subprime-mortgage bonds from the first half of 2007 fell today to a record low of 50.55, down about 16 percent from May 19, suggesting a corresponding drop on similar securities. Top-rated bonds of ``option'' adjustable-rate mortgages are also falling, according to a report yesterday from RBS Greenwich Capital.

Crude oil set a record last week as a report showed the unemployment rate rose in May by the most in more than two decades, signaling more financial woes for consumers. This week, Federal Reserve Chairman Ben S. Bernanke pledged to ``strongly resist'' any waning of confidence in stable prices, pushing up Treasury yields and mortgage rates and potentially prolonging the housing slump.

``There's a tremendous amount of extraneous events going on away from the mortgage market that are making people scared,'' said David Castillo, a senior trader at Further Lane Securities in San Francisco. ``Market activity over the last two weeks is down significantly over the previous four weeks.''

Non-agency mortgage bonds, the type that have experienced unprecedented downgrades and price declines since mid-2007, lack guarantees from government-chartered Fannie Mae and Freddie Mac, or federal agency Ginnie Mae. The market totaled $2.1 trillion on March 31, excluding derivative exposures, according to Fed data.

May Rally

The debt, along with other credit markets, had generally rallied through mid-May after the Fed backed the bailout of Bear Stearns Cos. and began lending directly to investment banks in March, signaling the central bank's willingness to prevent bank failures and easing a logjam in debt markets. Markets have since reversed, as banks and securities firms including Lehman Brothers Holdings Inc. report fresh losses.

The average yield over swap rates on the safest types of AAA U.S. commercial-mortgage securities rose yesterday to 1.57 percentage point, up from as low as 1.28 percentage point last month and down from a record high of 3.12 percentage points in March, according to a Bank of America Corp. index. The difference between yields on the Bloomberg index for Fannie Mae's current- coupon, 30-year fixed-rate mortgage bonds and 10-year government notes climbed to the highest since March today.

Investor Demand

The average yield over similar-duration Treasuries on AAA securities backed by subprime or second mortgages was at 6.23 percentage points yesterday, the highest since the last week of April, according to Lehman index data. The spread rose as high as 7.52 percentage points on May 9, according to the New York-based securities firm's index.

Renewed investor demand remains strong for the types of AAA rated subprime-mortgage bonds that are the first to be repaid with principal returned from the underlying loans, ``with little price discovery in other tranche types,'' according to a report yesterday from Countrywide Financial Corp. analysts including Anand Bhattacharya and Bill Berliner.

The ABX-HE-AAA 07-2 subprime index fell as low as 50.67 in March, according to administrator Markit Group Ltd. New ABX indexes created last month and tied to the second-to-last-to-be- repaid AAA classes have fallen to record lows for each six-month ABX series, with the latest declining from a high of 70 to 57.72.

Bet on Defaults

ABX indexes indicate prices for credit-default swaps linked to 20 bonds. The credit-default swaps offer protection if the securities aren't repaid as expected, in return for regular insurance-like premiums. The indexes tumbled last year from at or near 100 as investors bet defaults on home loans would rise.

So-called super-senior, or the safest, floating-rate bonds from 2006 and 2007 backed by option ARMs, whose minimum payments create growing loan balances, slipped last week to 73 cents to 78 cents for each dollar of principal, according to a report yesterday by Greenwich, Connecticut-based RBS Greenwich strategists Desmond Macauley and Joseph Ruszkowski. More-junior AAA classes were at 60 cents to 65 cents, they wrote, while similar securities from 2005 were in the ``low 80s.''

In mid-March, super-senior option ARM securities typically were trading at about 78 cents, while more-junior AAA classes were at 55 to 68 cents, according to UBS AG analyst estimates at the time.

To contact the reporter on this story: Jody Shenn in New York at jshenn@bloomberg.net.

Last Updated: June 10, 2008 17:01 EDT