Economics
Mortgage Bonds Rally as Fed Backstop Seen in QE3: Credit Markets
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Relative yields on mortgage-backed securities that guide new loan rates fell to the lowest in five months as investors wager the Federal Reserve is on standby to expand its holdings if the U.S. economy or Europe’s sovereign debt crisis worsens.
Yields on Fannie Mae’s current-coupon, 30-year bonds ended last week at 94 basis points more than 10-year Treasuries, the narrowest since July 8, according to data compiled by Bloomberg. The spread widened to 105 basis points as of 2:53 p.m. in New York, after reaching 121 on Nov. 24.