Yields on Fannie Mae and Freddie Mac mortgage securities that guide U.S. home-loan rates are trading at the lowest relative to Treasuries on record, even as the scheduled end of Federal Reserve purchases approaches. The difference between yields on Washington-based Fannie Mae’s current-coupon 30-year fixed-rate mortgage bonds and 10- year Treasuries narrowed 0.02 percentage point today to about 0.63 percentage point to match the smallest spread since at least 1984, according to data compiled by Bloomberg.
Spreads on agency mortgage bonds have held near lows while the unprecedented Fed program, in which the central bank is buying $1.25 trillion of the debt, nears its March 31 conclusion. Some investors consider the debt more attractive at tighter “nominal” spreads because of declines in expectations for interest-rate volatility, affecting how certain they can be about how long it will remain outstanding, according to JPMorgan Chase & Co. (more)
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