Interest Rate Roundup

Tuesday, March 04, 2008

Spread problems persist in the mortgage market

From Bloomberg this afternoon ...

"The extra yield that investors demand to own 'agency' mortgage-backed securities over 10-year U.S. Treasuries rose to a new eight-year high, raising the cost of mortgages for potential homebuyers.

"The difference between yields on the Bloomberg index for Fannie Mae's current-coupon, 30-year fixed-rate mortgage bonds and 10-year government notes widened about 10 basis points today, to about 203 basis points, or 69 basis points higher than Jan. 15. The spread helps determine the interest rates offered to homeowners on new prime mortgages of $417,000 or less."

In other words, the credit concerns and forced selling of many kinds of mortgage securities that have plagued the subprime, Alt-A, and jumbo loan markets are spreading (to a lesser degree) to the conforming world. This, in turn, will serve to keep longer-term mortgage rates elevated despite the Federal Reserve's recent rate cuts.


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