Mortgage Rates Dropping With Bond Yields at 7-Month Low

A rally in the mortgage-bond market is poised to send U.S. home-loan rates to a more than six-month low, bolstering a slowing real-estate recovery.

Yields on Fannie Mae securities that guide borrowing costs because they’re used to package new 30-year mortgages for sale fell 0.02 percentage point to 3.18 percent at 5 p.m. in New York, according to a Bloomberg index. That’s the lowest closing level since yields reached a four-month low of 3.15 percent on Oct. 29, after they surged as high as 3.81 percent in September. The yields ended 2013 at 3.61 percent.

Bond yields are tumbling this year as investors find fewer signs of strength in the economy than expected and less-than-anticipated damage to debt prices from the Federal Reserve’s reduction in its buying, said Vitaliy Liberman, a money manager who focuses on mortgage securities at DoubleLine Capital LP.

“Here we are in May 2014, and things are not as clear as they were five months ago,” Liberman said today in an interview in New York. His firm’s $32.7 billion DoubleLine Total Return Bond Fund (DBLTX) has gained 3.95 percent this year to beat 94 percent of peers, according to data compiled by Bloomberg.

Benchmark U.S. Treasuries gained today even after U.S. consumer-price inflation in April rose, claims for jobless benefits in the U.S. unexpectedly fell and a gauge of regional manufacturing increased more than forecast. Data showed the euro-area recovery failed to gather momentum last quarter, as France unexpectedly stalled and economies from Italy to the Netherlands shrank

Home Sales

The average rate offered on typical 30-year mortgages fell to a six-month low of 4.2 percent this week from a 2013 high of 4.58 percent in August, according to Freddie Mac surveys. Borrowing costs, which are driven by changes in lenders’ profit margins as well as bond yields, are up from a record low 3.31 percent in November 2012

Sales of previously owned homes dropped in March to the slowest pace since July 2012, as higher property prices and loan costs held back buyers, according to National Association of Realtors data. The further fall in mortgage rates “will help in terms of affordability but not to the extent one might expect,” Liberman said.

A measure of relative yields on the Fannie Mae current coupon securities, or those trading closest to face value, rose today to the widest since April 22. The bonds yield 1.17 percentage point more than an average of five- and 10-year Treasury rates, up 0.03 percentage point from yesterday, according to data compiled by Bloomberg.

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

To contact the editors responsible for this story: Shannon D. Harrington at sharrington6@bloomberg.net Richard Bravo

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