A group of economists are blaming the mortgage-backed securities market for unexpectedly high long-term interest rates that the country has seen during the past year.

In "Mortgage Security Hedging and the Yield Curve," a paper written for the Federal Reserve Bank of New York, the economists said companies are using short-term Treasury issues to hedge their mortgage-backed securities.

They do this because if rates go up, the yields on Treasurys will go up as well, offsetting the 16ss investors would receive on the fixed-rate mortgage securities, wrote Julia Fernald of Republic New York and Frank Keane and Patricia C. Mosser of the New York Fed.

The effect of this has been to increase the competition for short-term Treasury issues.

This competition artificially lowers the rate, widening the gulf between long- and short-term rates.

The change means that the Federal Reserve Board's actions on short-term rates do affect long-term rates in the same, historical manner.

"As a result, the transmission of monetary policy from short-term interest rate to the real economy, via long-term interest rates, has probably changed as well," the economists wrote.

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