Bloomberg News

Agency Mortgage-Bond Spreads Little Changed as Fed Holds Pat

August 01, 2012

Yields on Fannie Mae and Freddie Mac mortgage securities were little changed relative to government notes after the Federal Reserve didn’t announce new stimulus such as additional buying of the bonds.

The difference between yields on Fannie Mae’s current- coupon, 30-year fixed-rate mortgage bonds and 10-year Treasuries widened 0.01 percentage point to about 0.79 percentage point as of 5 p.m. in New York, according to data compiled by Bloomberg. The spread has fallen from a 2012 high of 1.07 percentage points on June 1, partly on speculation that the central bank will expand its purchases to bolster the economy.

Fed Chairman Ben S. Bernanke held off on stepping up record stimulus even as consumer spending flagged, economic growth slowed and unemployment persisted at 8.2 percent. Current actions include purchases of $260 billion of government-backed mortgage bonds under a reinvestment program begun in October.

The Federal Open Market Committee “will closely monitor incoming information on economic and financial developments and will provide additional accommodation as needed to promote a stronger economic recovery and sustained improvement in labor market conditions in a context of price stability,” it said today in a statement at the conclusion of a two-day meeting.

Two-thirds of investors surveyed last week by JPMorgan Chase & Co. are “overweight” mortgage securities, or holding more than found in benchmark bond indexes. Almost 80 percent expect the Fed to buy more of the debt, with 57 percent forecasting an announcement at or before its September meeting, according to a July 27 report by the bank’s analysts.

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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