Prices on agency mortgage bonds rose and risk premiums tightened sharply Tuesday as buyers return in full force to extend last week’s gains. The demand will be welcome news to the Federal Reserve as it confirms the Fed’s expectation that private buyers would replace the central bank’s $1.25trn purchase program that ended March 31. A combination of pent-up demand, cash on hand and expectations for a stable range of movement in 10-year Treasury yields are providing a boost to these securities guaranteed by Fannie Mae, Freddie Mac and Ginnie Mae. Buyers include banks, domestic money managers and foreign banks.

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