Mortgage bonds lose ground with home refi boom: credit markets

Government-backed U.S. mortgage bonds underperformed Treasuries in August by the most since November 2008 amid concern federal intervention will spark a refinancing wave that reduces the value of the securities. Fannie Mae, Freddie Mac and Ginnie Mae bonds tied to home loans returned 34 basis points, or 0.34 percentage point, less than U.S. debt last month, Barclays Capital indexes show. Fannie Mae’s 6.5 percent bonds maturing in about 24 years fell 0.75 cent last month to 108.9 cents on the dollar as 4.5 percent Treasury bonds maturing in 2036 gained 8.9 cents to 118.34 cents, according to data compiled by Bloomberg. President Barack Obama’s administration responded to July’s record decline in U.S. home sales by highlighting the Federal Housing Administration’s refinancing program. Homeowners swapping into new loans, with the lowest mortgage rates in 39 years, would punish bond investors who bought securities pegged to loans with higher interest rates.

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