Yields on Fannie Mae and Freddie Mac mortgage securities approached record lows relative to Treasuries as evidence of higher borrowing costs and homeowners' refinancing difficulties reduced concern that supply would increase.

The spread on Fannie's current-coupon, 30-year, fixed-rate mortgage bonds narrowed 0.03 percentage point, to about 0.65 percentage point more than 10-year Treasurys as of 9:33 a.m. Tuesday.

The gap, which had fallen from 0.82 percentage point on June 30, touched a low of 0.59 percentage point on March 29, two days before the Federal Reserve ended its buying of $1.25 trillion in home loan debt.

Foreign investors such as central banks have been flocking to agency mortgage bonds and debt as a haven, boosting their holdings by more than $50 billion this year, according to Fed data. Mortgage rates may be rising off record lows, and bond prepayments reports released July 7 showed limited refinancing, suggesting a slackening supply as borrowers move out of loans in bonds on the Fed's balance sheet.

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