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Agency Mortgage Bond Prices Soar To New Highs Across All Coupons
NEW YORK (Dow Jones)--Prices on agency mortgage-backed securities rose to 15-year highs on Tuesday, lifted by strong demand for these bonds among investors seeking a safe-haven.
These bonds, which carry Fannie Mae (FNM) and Freddie Mac (FRE) guarantees, are seen as backed by the U.S. government and perceived to be risk-free investments amidst the global turmoil.
"Mortgages have become a flight-to-quality instrument," said Mahesh Swaminathan, strategist with Credit Suisse.
Prices on the Fannie Mae 30-year bond with a 4.5% coupon rose to 103-10, a 15-year high for this bond. Prices on other coupons also rose to mark new highs. Market participants say strong demand and lack of new supply have contributed to the gradual surge in price.
After the end of the Federal Reserve's $1.25 trillion agency mortgage purchase program on March 31, domestic banks and foreign investors have been hoarding these bonds, said Brett Rose, mortgage strategist with Citigroup.
Foreign investors purchased $10.5 billion net of these bonds, according to the latest Treasury data. This is higher than the $2 billion to $4 billion range of net purchases prior to that.
On the supply side, the slowdown in home sales has contributed to the lack of newly originated securities hitting the market. The limited issuance doesn't go even halfway on most days to meet the strong demand, market participants say.
Another reason for the rise in prices is the low rate on the 10-year Treasury, typically used as a benchmark to determine mortgage rates.
The last time the benchmark Treasury rate was this low was in December. At that time, mortgage investors were worried about the impact of the Federal Reserve ending its mortgage purchases, which had helped stabilize the market after the takeover of Fannie and Freddie by its administrator in 2008. Also, low mortgage rates had started a refinance wave among homeowners, which makes these securities less valuable for bondholders since they pay off earlier than expected.
NEW YORK (Dow Jones)--Prices on agency mortgage-backed securities rose to 15-year highs on Tuesday, lifted by strong demand for these bonds among investors seeking a safe-haven.
These bonds, which carry Fannie Mae (FNM) and Freddie Mac (FRE) guarantees, are seen as backed by the U.S. government and perceived to be risk-free investments amidst the global turmoil.
"Mortgages have become a flight-to-quality instrument," said Mahesh Swaminathan, strategist with Credit Suisse.
Prices on the Fannie Mae 30-year bond with a 4.5% coupon rose to 103-10, a 15-year high for this bond. Prices on other coupons also rose to mark new highs. Market participants say strong demand and lack of new supply have contributed to the gradual surge in price.
After the end of the Federal Reserve's $1.25 trillion agency mortgage purchase program on March 31, domestic banks and foreign investors have been hoarding these bonds, said Brett Rose, mortgage strategist with Citigroup.
Foreign investors purchased $10.5 billion net of these bonds, according to the latest Treasury data. This is higher than the $2 billion to $4 billion range of net purchases prior to that.
On the supply side, the slowdown in home sales has contributed to the lack of newly originated securities hitting the market. The limited issuance doesn't go even halfway on most days to meet the strong demand, market participants say.
Another reason for the rise in prices is the low rate on the 10-year Treasury, typically used as a benchmark to determine mortgage rates.
The last time the benchmark Treasury rate was this low was in December. At that time, mortgage investors were worried about the impact of the Federal Reserve ending its mortgage purchases, which had helped stabilize the market after the takeover of Fannie and Freddie by its administrator in 2008. Also, low mortgage rates had started a refinance wave among homeowners, which makes these securities less valuable for bondholders since they pay off earlier than expected.
http://online.wsj.com/article/BT-CO-20100622-711868.html
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