Yields on Fannie Mae and Freddie Mac mortgage securities that guide home-loan rates jumped to their highest levels in almost six months, suggesting borrowing costs will continue to climb from record lows.
Fannie Mae’s current-coupon 30-year fixed-rate mortgage bonds rose to 4.04 percent as of 5 p.m. in New York, according to data compiled by Bloomberg. Yields, whose changes typically create similar movements in loan rates, have increased from 3.27 percent on Nov. 4.
The securities gained from 3.84 percent yesterday to the highest since June 16. That generally tracked Treasury yields after President Barack Obama agreed to extend tax cuts for two years, potentially widening budget deficits. An auction of three-year government notes drew the lowest demand since February.
“Typically, days like this are on big news such as a surprising payroll report or shift in Fed policy,” Jim Vogel, a debt analyst at FTN Financial in Memphis, Tennessee, said in a note to clients. “While the tax agreement is news, it’s not that surprising.”
Mortgage bonds joined the “rout,” Walt Schmidt, another FTN Financial analyst, wrote in a separate note.
The average rate on a typical 30-year fixed-rate mortgage fell to a record 4.17 percent in the week ended Nov. 11, compared with this year’s high of 5.21 percent in April, according to McLean, Virginia-based Freddie Mac. Rates have climbed for three weeks, to 4.46 percent, sending mortgage- refinancing applications to the lowest since June and adding to challenges for the U.S. housing market.
Yields on agency mortgage bonds are now guiding rates on almost all new U.S. home lending following the collapse of the non-agency market in 2007 and a retreat by banks. The $5.3 trillion market includes securities guaranteed by government- controlled Fannie Mae and Freddie Mac and bonds of government- insured loans guaranteed by federal agency Ginnie Mae.
The difference between yields on the Fannie Mae current- coupon securities, which most influence loan rates because they trade closest to face value, and 10-year Treasuries narrowed less than 0.02 percentage point to about 0.90 percentage point, Bloomberg data show.
Prices of low-coupon mortgage bonds slumped more than a series of Treasuries with maturities similar to their projected cash flows as investor concern grew that loan servicers would sell the debt in response to an anticipated lengthening of their contracts, said Paul Norris, a senior money manager at Dwight Asset Management Co. in Burlington, Vermont.
“Obviously durations are going to extend,” he said in a telephone interview. While the concern is probably overblown at current rate levels, “guys are a little worried now,” he added.
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