Mortgage bond spreads

per Bloomberg:

Borrowing costs for U.S. homebuyers may be falling again, thanks to Greece’s woes, but not as much as they could be.
That’s because, even as the potential unraveling of the European experiment drives investors toward safer debt, yield premiums on benchmark U.S. government-backed mortgage securities are climbing, reaching the highest level in 11 months.
An improvement in housing is adding to supply in the $5.5 trillion market as investors eye widening spreads on other bonds amid turmoil in Greece and the Federal Reserve’s coming retreat from the debt. The central bank has pledged to use reinvestments to maintain the size of its growth-boosting mortgage holdings until it raises short-term borrowing costs, a move that may come as soon as September.
“You’re getting closer to the point where the Fed is going to be lifting rates and, subsequent to that action, you’re going to be seeing them taper their reinvestments,” said Janaki Rao, a vice president at AllianceBernstein Holding LP, which oversees about $500 billion. “We’ve basically had the Fed in our market in one way or another since December 2008. As it exits, spreads should widen out.”
A Bloomberg index of yields on Fannie Mae-guaranteed mortgage bonds trading closest to face value rose to about 1.13 percentage point higher than an average of those on five- and 10-year Treasuries as of 12:50 p.m. in New York. That’s up from 0.92 percentage point on Dec. 31 and the highest since August.

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