May 8, 2008 / 5:09 AM / 11 years ago

MORTGAGES/AGENCIES-Mortgage bonds continue on bullish run

NEW YORK (Reuters) - Yield spreads on Fannie Mae FNM.N and Freddie Mac FRE.N U.S. mortgage-backed securities continued to tighten against Treasuries on Wednesday, with prices reaching their most expensive levels since January, as recent news fueled the sector’s bullish momentum.

Fannie Mae on Tuesday reported a worse-than-expected loss in the first quarter, but the results were overshadowed by what many considered to be market-friendly news from its regulator, the Office of Federal Housing Enterprise Oversight.

“The market has reacted very well to the news from OFHEO, and while there has not been one big buyer of mortgage bonds there has been buying from pretty much every investor base,” said Arthur Frank, director and head of MBS research at Deutsche Bank Securities in New York.

“A lot of investors feel that even if Fannie Mae is losing money on its old book of business, it will be making solid profits on its new book of business,” he said.

The yield premium on Fannie Mae MBS paying 5.50 percent interest versus the 10-year Treasury note narrowed to 1.45 percentage points on Wednesday from 1.475 percentage points on Tuesday, according to Reuters data.

That is the most expensive the securities have been since January and also significantly tighter than where the spread was in mid-March when it reached the widest level in more than 20 years at 2.37 percentage points.

OFHEO on Tuesday said it lifted a 2006 consent order placing limits on Fannie Mae after the firm fixed problems tied to an accounting scandal.

OFHEO said it intends to further reduce the capital surplus requirement it placed on Fannie Mae upon successful completion of its capital-raising effort.

OFHEO said it aims to lower the surplus capital Fannie Mae must retain to 15 percent from 20 percent after the latest capital-raising is completed. The surplus requirement was reduced from 30 percent in mid-March.

That reduction set the tone for where the mortgage bond market is today. After a long absence, investors have become confident that government-sponsored enterprises will be the large players they once were in the mortgage bond market and provide an important backstop.

With Fannie Mae’s first-quarter results out of the way, market participants will shift focus to Freddie Mac’s results on May 14.

Active 15- and 30-year mortgage securities were 5/32 to 17/32 higher. Bond equivalent yields on 30-year 5.50 percent coupon MBS ranged from 5.205 percent to 5.320 percent.

Prices on 30-year 6 percent coupons were 10/32 higher. Bond equivalent yields ranged from 4.995 percent to 5.074 percent.

Outside of outright buying, the monthly reinvestment of paydowns and tightening of interest rate swaps spreads against Treasuries also buoyed the sector.

Yield spreads on agency debt securities were tighter against Treasuries across the yield curve, with securities on the front-end outperforming those on the long-end.

Fannie Mae 5.375 percent 10-year benchmark notes due June 12, 2017, were 0.5 basis points tighter at 60.5 basis points bid and 58.5 basis points offered over Treasuries.

U.S. Treasury debt prices hit session highs as stocks extended losses after oil prices jumped to record peaks above $123 per barrel.

U.S. benchmark 10-year Treasury notes US10YT=RR were 19/32 higher at 97-6/32 to yield 3.846 percent. Yields, which move inversely to price, were down from Tuesday’s 3.909 percent.

Additional Reporting by Lynn Adler; Editing by Leslie Adler

0 : 0
  • narrow-browser-and-phone
  • medium-browser-and-portrait-tablet
  • landscape-tablet
  • medium-wide-browser
  • wide-browser-and-larger
  • medium-browser-and-landscape-tablet
  • medium-wide-browser-and-larger
  • above-phone
  • portrait-tablet-and-above
  • above-portrait-tablet
  • landscape-tablet-and-above
  • landscape-tablet-and-medium-wide-browser
  • portrait-tablet-and-below
  • landscape-tablet-and-below