Fannie Mae-No Politics (FNMA)

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[Fannie Mae 3% MBS rose 8/32 to 97-7/32, outperforming Treasurys by 1/32, according to Credit Suisse. Fannie Mae 5.5% MBS rose 8/32 to 110-16/32, the highest ever./b]

DJ Mortgage-Backed Securities Rise on Fed, Refinancing Views

Feb 07, 2014 10:20:00 (ET)

By Al Yoon
Mortgage-backed securities rose and outperformed Treasurys after a disappointing January employment report boosted speculation that the Federal Reserve could continue its support of the market longer than anticipated.

Some mortgage bonds also rose to record highs after reports late on Thursday indicated borrowers were refinancing at a slower-than-expected rate in January, boosting the value of bonds backed by residential loans with high interest rates.

The combination of shifting investor views on the Fed and refinancing is sending an unusually strong sign for the $5 trillion market for government-related mortgage bonds, which generally pay interest rates from 2.5% to 6%. Taken alone, the expectations that the Fed could maintain its bond-purchases for a longer period could hurt high-rate MBS if bondholders anticipate reinvesting principal at lower rates after borrowers refinance.


The reports are "a panacea for MBS," said Walter Schmidt, head of mortgage strategy at FTN Financial.

Fannie Mae 3% MBS rose 8/32 to 97-7/32, outperforming Treasurys by 1/32, according to Credit Suisse. Fannie Mae 5.5% MBS rose 8/32 to 110-16/32, the highest ever.

Mortgage-backed securities gained as the government reported U.S. employers added 113,000 jobs to payrolls in January, below the 189,000 median estimate of economists in a Wall Street Journal poll. It followed other reports suggesting economic momentum may be slowing, such as data on Monday showing manufacturing growth slowed at the fastest one-month pace since May 2011.

"A continued string of weak numbers brings a pause in tapering back into play as the Fed evaluates the trajectory of the economy," said Scott Buchta, head of fixed-income strategy at Brean Capital. "This would increase the amount of bonds that the Fed buys over the coming 12 to 15 months."

Higher-rate mortgage-backed securities got a bigger boost after U.S. supported mortgage finance firms Fannie Mae and Freddie Mac indicated the rate of principal repayment on 30-year loans fell by 21% last month, according to Credit Suisse.

Write to Al Yoon at [e-mail]
(END) Dow Jones Newswires

February 07, 2014 10:20 ET (15:20 GMT)

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