Sales of U.S.-backed mortgage bonds soared to a three-year high as steps by the Federal Reserve and Obama administration to make home ownership more affordable propelled a 34 percent jump in refinancing.
Issuance of securities guaranteed by government-supported Fannie Mae and Freddie Mac or U.S.-owned Ginnie Mae has climbed to $1.72 trillion, compared with $1.22 trillion last year and $1.73 trillion in 2009, according to data compiled by Bloomberg. With weekly rates on 30-year home loans falling to record lows eight times since July, the first increase since 2009 in refinancing has driven total lending to almost $1.8 trillion this year, double a forecast from the Mortgage Bankers Association in October 2011.
The Fed, the biggest buyer in the $5.2 trillion market, has purchased about $500 billion of the debt in 2012 as it tries to stoke the economy while President Barack Obama promotes programs to help more homeowners lower their monthly bills. In September, the central bank accelerated purchases of mortgage securities by $40 billion a month for its third round of so-called quantitative easing, or QE3.
"The supply over the last three months in particular has been stronger than we anticipated, even given QE3," Walt Schmidt, a mortgage strategist in Chicago at FTN Financial, said in a telephone interview. The gains partly reflected originators increasing capacity through hiring, he said.
While issuance of home-loan bonds without U.S. backing also climbed, sales are below the peaks reached before delinquencies on the loans helped spark the worst financial crisis since the Great Depression. Sales tied to new home loans quintupled to $3.5 billion, compared with the record annual pace of $1.2 trillion reached in 2005 and 2006, Bloomberg-compiled data show.
As in the past three years, "the agency mortgage market was the only game in town for new origination," Royal Bank of Scotland Group Plc strategists Jeana Curro and Ashley Gam wrote in a 2013 outlook published Dec. 13.
Next year, agency mortgage-bond issuance may slip to $1.65 billion as refinancing remains elevated and higher Fannie Mae and Freddie Mac insurance fees help push banks to retain more home loans, they said.
Elsewhere in credit markets, the cost of protecting corporate debt from default in the U.S. rose for a fourth day. The Markit CDX North American Investment Grade Index, which investors use to hedge against losses or to speculate on creditworthiness, added 1.6 basis points to a mid-price of 96.7 basis points as of 11:45 a.m. in New York, according to prices compiled by Bloomberg.
The measure, which has climbed from a three-month low on Dec. 20, typically rises as investor confidence deteriorates and falls as it improves. Credit-default swaps pay the buyer face value if a borrower fails to meet its obligations, less the value of the defaulted debt. A basis point equals $1,000 annually on a contract protecting $10 million of debt.
The U.S. two-year interest-rate swap spread, a measure of debt-market stress, was little changed at 14.4 basis points as of 11:44 a.m. in New York. The gauge widens when investors seek the perceived safety of government securities and narrows when they favor assets such as company debentures.
Bonds of Caracas-based Petroleos de Venezuela SA, or PDVSA, are the most actively traded dollar-denominated corporate securities by dealers today, with 33 trades of $1 million or more as of 11:46 a.m. in New York, according to Trace, the bond- price reporting system of the Financial Industry Regulatory Authority.
U.S. government-backed mortgage bonds have returned 2.5 percent this year through yesterday, beating similar-duration Treasuries by 1.3 percentage points, Bank of America Merrill Lynch index data show. In 2011, the home-loan debt gained 6.1 percent, underperforming the government notes by 0.8 percent.