Mortgage-Bond Yields Surge in Largest Weekly Increase Since 2009

Yields on Fannie Mae and Freddie Mac mortgage bonds that guide U.S. home-loan rates posted their largest weekly increase in four years, 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 rose 0.15 percentage point today to a 22-month high 3.44 percent as of 5 p.m. in New York. Yields, which have climbed in seven of the past eight weeks, rose 0.5 percentage point this week, the biggest weekly advance since June 2009.

Bonds are tumbling worldwide as the Fed moves closer to scaling back its $85 billion in monthly debt buying, including $40 billion of government-backed mortgage securities. Chairman Ben S. Bernanke said June 19 at a news conference following a statement by the Federal Open Market Committee that the central bank may “moderate” the pace later this year and end the purchases around the middle of 2014 if the economy continues to improve as it forecasts.

“The FOMC statement and subsequent press conference by Fed Chairman Ben Bernanke affirmed the momentum towards tapering,” Anish Lohokare and Timi Ajibola, BNP Paribas SA analysts in New York, wrote yesterday in a report.

Selling of mortgage bonds may also be tied to changes in their expected lives as rates climb, a dynamic known as convexity, as well as a desire by firms that rely on borrowed money such as real-estate investment trusts to reduce the rising leverage ratios caused by the slumping value of their holdings, they said. Dealers may also seek to pare inventories, they said.

The average cost of new 30-year, fixed-rate home loans climbed yesterday to 4.24 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 closet to face value, rose to the highest since June 2012. Relative yields on the securities climbed about 0.03 percentage point to 1.46 percentage point higher than an average of five- and 10-year Treasury rates.

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