Bond Yields Guiding Mortgage Rates Climb for Fifth Straight Day

Yields on Fannie Mae and Freddie Mac mortgage bonds that guide U.S. home-loan rates rose for a fifth day to the highest level since August 2011, extending a surge sparked by a potential slowing of the Federal Reserve’s debt buying.

A Bloomberg index of Fannie Mae’s current-coupon 30-year securities climbed 0.03 percentage point to 3.5 percent as of 4:05 p.m. in New York, up from 2.98 percent on June 18. Bonds have tumbled worldwide after Fed Chairman Ben S. Bernanke said the next day at a news conference that the central bank may “moderate” the pace of its $85 billion of monthly debt buying later this year and end the purchases around the middle of 2014.

The Fed has been buying $40 billion of debt each month from the roughly $5.5 trillion market for U.S. government-backed mortgage bonds. The risks now range from bond fund withdrawals and selling by real-estate investment trusts to higher volatility and relative yields that remain below historical averages, according to Bank of America Corp. analysts.

“Positives are developing, though will take time to drive market sentiment,” the New York-based analysts led by Satish Mansukhani wrote in a June 21 report.

The positives include the potential for higher yields to create buying by banks and insurers and less risk of policy makers stoking refinancing amid higher loan rates, they said.

The average cost of new 30-year, fixed-rate home loans climbed yesterday to 4.51 percent from a record low 3.36 percent in December, according to data.

A measure of spreads on the Fannie Mae current coupon debt, or bonds trading closest to face value, remained at about the highest since June 2012. Relative yields on the securities fell about 0.01 percentage point to 1.46 percentage point higher than an average of five- and 10-year Treasury rates.

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To contact the editor responsible for this story: Alan Goldstein at

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