Bloomberg News

Fannie Mortgage-Bond Spreads Decline on Call for New Fed Buying

October 21, 2011

Oct. 21 (Bloomberg) -- Yields on Fannie Mae and Freddie Mac mortgage securities that guide home-loan rates narrowed relative to Treasuries after a Federal Reserve official signaled the central bank may consider expanding its holdings of the bonds.

Fannie Mae’s current-coupon 30-year fixed-rate mortgage securities declined about 0.02 percentage point to 1.08 percentage points more than 10-year U.S. government debt as of 8:48 a.m. in New York, the least in three days, according to data compiled by Bloomberg.

Fed Governor Daniel Tarullo called yesterday for a resumption of large-scale purchases of mortgage bonds, boosting chances the central bank will start a third round of asset buying aimed at reviving U.S. growth. The Fed began a program this month in which the central bank reinvests proceeds from its holdings of $1.4 trillion housing debt into the more than $5 trillion market for government-backed mortgage bonds.

Policy makers should move the tool of mortgage-bond buying “back up toward the top of the list” because it would help the economy through lower mortgage costs that would boost house purchases and spending by people who refinance their home loans, Tarullo said late yesterday in a speech in New York.

--With assistance from Scott Lanman in Washington and Caroline Salas Gage in New York. Editors: Pierre Paulden, Alan Goldstein

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

To contact the editor responsible for this story: Alan Goldstein at agoldstein5@bloomberg.net


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