U.S. home loan bonds without government backing slumped for a second week as investors and brokers pulled back from several types of securitized debt after what was characterized as an intense rally.
The most-senior so-called nonagency securities backed by option adjustable-rate mortgages tumbled 4 cents on the dollar last week, to 47 cents, after falling 2 cents the previous week, according to data from Barclays Capital Inc. The debt had jumped from 33 cents on the dollar in March.
After what JPMorgan Chase & Co. analysts called a "furious rally in risky assets" that started in March, investors are getting pickier about securities backed by residential and commercial mortgages and debt such as auto loans, and they are preparing for yearend by seeking to lock in gains with sales, the analysts wrote.
"The buy everything, asset grab phase is likely at or near its end," JPMorgan Chase analysts led by Chris Flanagan wrote in a Nov. 13 report.
The $1.7 trillion market for nonagency home loan securities rallied earlier this year after a record collapse that began in 2007 as gains across debt markets pushed investors to accept lower potential yields and traders anticipated demand tied to the U.S. Public-Private Investment Program that pairs taxpayer money with private funds.
Typical prices for the most-senior bonds backed by alternative-A loans with a few years of fixed rates dropped 2 cents, to 54 cents, last week after climbing to 60 cents late last month from 35 cents in mid-March, when nonagency prices bottomed, according to Barclays data.
Fixed-rate prime-jumbo mortgage bonds were unchanged at 83 cents last week. That is down from 85 cents late last month and up from 63 cents in mid-March.
Nonagency home loan securities lack guarantees from Fannie Mae and Freddie Mac, the government-supported mortgage finance companies, or the Government National Mortgage Association, a federal agency known as Ginnie Mae.