Low-coupon mortgage bond yield spreads climb to highest in year

Yields on Fannie Mae and Freddie Mac mortgage securities that guide home-loan rates rose to the highest in more than a year relative to 10-year Treasuries. Fannie Mae’s current-coupon 30-year fixed-rate mortgage bonds climbed about 0.03 percentage point to about 0.96 percentage point more than 10-year U.S. government debt as of 11:05 a.m. in New York, the widest spread since October 2009, according to data compiled by Bloomberg. The gap was 0.76 percentage point on Oct. 29. Prices for the securities tumbled this month relative to Treasuries even as those of so-called agency mortgage bonds backed by higher-rate loans soared. Rising borrowing costs may cause the lowest-coupon debt to prepay more slowly than investors expected by reducing consumer refinancing and home sales. That would delay the time it takes for bondholders to recoup their principal.