Prices of U.S. mortgage bonds without government support rose last month, as lower home-loan rates boosted investor demand.

Securities initially rated triple-A and backed by prime-jumbo mortgages with five years of fixed rates climbed 5 cents on the dollar in December, to 75 cents, according to JPMorgan Chase & Co. data.

Bonds of 30-year alternative-A loans with conforming balances rose to 45 cents less than similar Fannie Mae bonds, from 52 cents, JPMorgan Chase analysts wrote in a Jan. 2 report.

Nonagency mortgage bonds are getting a boost from government efforts to drive down mortgage rates, which means foreclosure sales may be less costly and more borrowers may be able to refinance, Ajay Rajadhyaksha, the head of fixed-income strategy at Barclays PLC's investment bank in New York, wrote in a report last month.

"Part of the optimism in residential credit stems from hopes of faster prepayment speeds," Mr. Rajadhyaksha wrote.

The rising bond prices also reflected a rally across credit markets in December, after unprecedented declines in October and November. The percentage of high-yield corporate bonds in distress — or with yields at least 10 percentage points greater than Treasuries — fell last month for the first time since May, according to data from Bank of America Corp.'s Merrill Lynch & Co.

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