Yields on Fannie Mae and Freddie Mac mortgage securities that guide home loan rates widened to a seven-month high relative to Treasuries Tuesday as borrowing costs near record lows led to speculation that issuance will increase.

Fannie Mae's current-coupon 30-year fixed-rate mortgage bonds increased less than 0.01 percentage point, to 0.93 percentage point more than 10-year Treasuries, as of 9:33 a.m. in New York, up from 0.69 percentage point on April 26 and the biggest gap since Oct. 21.

Yields on agency mortgage securities have been declining more slowly than those on benchmark 10-year Treasuries, which have retreated as investors seek only the most liquid debt, concerned that Europe's debt crisis may derail the global economy and damage banks.

Spreads also widened because low mortgage rates may spark refinancing, leading to more supply, Walt Schmidt, a strategist at First Horizon National Corp.'s FTN Financial, wrote in a note to clients Monday.

"There's always people who missed out" on recent refinancing opportunities, said Steven Jacobson, the chief executive of Fairway Independent Mortgage Corp. His Madison, Wis., company originated more than $3 billion of loans last year.

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