Mortgage-Bond Spreads Narrow to Lowest in More Than 17 Years

The difference between yields on Washington-based Fannie Mae’s current-coupon 30-year fixed-rate mortgage bonds and 10- year Treasuries narrowed about 0.01 percentage point to 0.66 percentage point as of 10:31 a.m. in New York, the lowest since May 1992, the record low since at least 1984, according to data compiled by Bloomberg. The spread has narrowed 0.09 percentage point since the Treasury’s Dec. 24 announcement of its expanded capital backstop and portfolio limits for government-supported Fannie Mae and Freddie Mac, as the Fed’s buying continues amid a decline in new supply reflecting lower home-loan applications. Demand by borrowers fell amid the Christmas and New Year’s holidays and as a rise in loan rates lessened refinancing. “There is still a lack of supply” with investors including banks and Wall Street traders, Walt Schmidt, a mortgage-bond strategist in Chicago at FTN Financial Capital Markets, wrote in a note to clients yesterday.

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