Yields on Fannie Mae and Freddie Mac mortgage-backed securities, relative to government notes, held near the lowest since July 2007 on Tuesday as the Federal Reserve Board's buying pushed spreads lower and investors considered the latest government efforts to fix the financial system.
The difference between yields on Fannie's current-coupon 30-year fixed-rate mortgage bonds and 10-year Treasuries rose 1 basis point to 129 basis points as of 10:30 a.m. Tuesday in New York.
The Fed has bought at least $91.7 billion of so-called agency mortgage securities under a program targeting $500 billion by June 30. The central bank's effort to lower mortgage rates, which have risen since mid-January, has been buffeted in recent weeks by rising yields on benchmark Treasuries.
"The Fed's program has been having its desired impact in reducing that spread between MBS and Treasuries," Nicholas Strand, a mortgage bond analyst at Barclays Capital Inc. in New York, said Tuesday. "I think they'd like overall interest rates to cooperate a little better to get overall mortgage rates a little lower."
Yields on Fannie Mae's mortgage bonds have risen 53 basis points, or 0.53 of a percentage point, from a record low on Jan. 12, to 4.21%.
On Tuesday morning Treasury Secretary Timothy Geithner laid out what he described as a "comprehensive" attack on the financial crisis.
Yields on agency mortgage bonds are now guiding rates on almost all new U.S. home lending.