Oil Plunge Pause Improves Outlook for U.S. Home-Loan Bonds
Mortgage-backed securities are sensitive to swings in rates, often underperforming benchmark debt when they either rise or fall, because borrowing costs influence how fast homeowners refinance before their loans’ terms, typically 30 years, are over.
Photographer: Jacob Kepler/BloombergBank of America Corp., which had been warning investors to avoid U.S. government-backed mortgage securities, reversed its call this week. The reason: oil prices are stabilizing.
The end of oil’s seven-month tumble probably signals that bond yields are poised to rise after they plunged too quickly, Bank of America analyst Satish Mansukhani said in an interview. Higher yields may push interest rates on new mortgages above 4 percent, making it less attractive for homeowners to refinance, and giving a boost to a $5.5 trillion debt market that in January suffered its worst monthly returns relative to Treasuries since 2008.