Mortgage-backed bond investors push for higher interest rates
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Investors buying bonds backed by Fannie Mae and Freddie Mac mortgages are demanding higher interest rates, Bloomberg News reported today.
Why should anyone but bond buyers care? Well, if the buyers won’t accept lower yields, the bond issuers will have to get loans with higher interest rates to bundle up and sell. And since the vast majority of all U.S. mortgages are now winding up in Fannie and Freddie securities, that could mean more costly loans for anyone buying or refinancing a house.
In a bid to keep rates down, the Federal Reserve has been aggressively buying Fannie and Freddie bonds. But the Bloomberg report suggests that the efforts may not be working as well as the Fed hoped.
From the article:
The Fed, seeking to use lower home-loan rates to stem the housing slump and bolster consumers, said March 18 it would increase its planned purchases of so-called agency mortgage bonds by $750 billion, to as much as $1.25 trillion, and start buying government notes. Rising mortgage-bond yields, driven higher in part by climbing Treasury rates, means the Fed now “faces a challenge to its ability to sustain low mortgage rates,†according to Jeffrey Rosenberg at Bank of America Corp.
The report notes that the yields on 10-year Treasury bonds, a traditional indicator of fixed-rate mortgage trends, are at six-month highs.
The average rate on a typical 30-year mortgage for the week ending May 21 was 4.82%, Freddie Mac said last week. When Freddie issues its new rate report Thursday, will the average have crept closer to 5% again?
It sure looks like the answer is yes.
-- E. Scott Reckard
