A drop in mortgage bonds backed by the government

A drop in mortgage bonds backed by the government that sent yields to the highest level since May of threat to the recovery of the U.S. housing market, which had been fueled by historically low borrowing costs.

Yields on Fannie Mae to guarantee that most affect lending rates jumped as high as 4.21 percent yesterday, up 1 percentage point from a record low in October. Completed the New York market by 4.1 percent.

The highest rates of loan "will not be fun" for a weak housing market, said Scott Simon, director of mortgage bonds in Newport Beach, California, Pacific Investment Management Co., manager of the largest bond fund in the world. "If you're thinking of buying a house a few weeks ago, the same house, you, it seems that up to 9 percent more expensive," he said.

The agency mortgage securities investors have suffered during the accident this month in bond prices, amid speculation that the agreement of President Barack Obama to extend and expand tax cuts will spur growth and inflation. While the decline was not as severe as for Treasuries, the effects of higher mortgage rates, coupled with escalating gas prices, offset much of the fiscal stimulus package intended effects, according with Gluskin Sheff & Associates chief economist David Rosenberg.

Top Monthly payments

The average rate on a typical mortgage of 30-year fixed rate has risen for four weeks averaged 4.61 percent last week, according to Freddie Mac, pushing the monthly cost of a loan of U.S. $ 300,000 to $ 1,540 from $ 1,462. The rate had fallen to a record low 4.17 percent in the week ended Nov. 11 amid speculation of a bond purchase program by the Federal Reserve may limit yields.

Elsewhere in credit markets, the extra yield investors demand to own corporate bonds rather than similar-maturity government debt remained unchanged at 171 basis points, or 1.71 percentage points below this year in the high of 201 basis points in June, according to Merrill Lynch Bank of America on the world market overall Corporate Index. The average yield of 3.952 percent.

Occidental Petroleum Corp. sold 2.6 billion U.S. dollars of debt in the largest bond offering in over five weeks. four largest banks in Australia may cut borrowing costs by up to 40 percent of the sale of covered bonds after the government pledged to lift a ban on the issuance of securities.

Bonds Fairfield, Connecticut-based General Electric Co. were the most actively traded U.S. corporate securities by dealers, with 120 transactions of $ 1 million or more, according to Trace, the bond information system in the prices of the Financial Industry Regulatory Authority.

The Barclays Capital Global Aggregate Bond Index has returned 0.03 percent this month, bringing the gain this year to 4.22 percent.

Sale West

West, the largest producer of raw land in the continental United States, sold $ 600 million three-year bonds yield 50 basis points more than similar Treasury bonds to maturity, $ 700 million debt five years with a spread 60 basis points and $ 1.3 billion 10-year bonds at 80 basis points above the benchmark. A basis point is 0.01 percentage point.

The sale is the largest since Coca-Cola Co., the world's largest maker of soft drinks, issued $ 4,500,000,000 of bonds on Nov. 4. The income can be used to finance acquisitions, the company in Los Angeles, said yesterday in a regulatory filing.

West last hit debt markets in May 2009, the issuance of $ 750 million 4.125 percent notes 7. The debt traded on 9 December at 108.68 cents, monitoring data show.

IBM Notes

Armonk, New York, International Business Machines Corp. sold $ 1 billion of floating rate notes in its first offering of this type of credit in more than one year. The notes yield 3 basis points more than the three-month interbank rate in London offer a benchmark for loans.

Westpac Banking Corp., the Commonwealth Bank of Australia, Australia and New Zealand Banking Group Ltd. and National Australia Bank Ltd. may be able to issue covered bonds three years to yield about 50 basis points more than the rate of bank swap bill, unless the spread 85 basis points on senior debt, according to Royal Bank of Scotland Group Plc. Moody's Investors Service estimates a savings of 20 percent.

"The main weapons'

Covered bonds are "essential weapons as banks seek cheaper and more diversified funding sources," said John Manning, a credit analyst at RBS in Sydney, in a telephone interview.

Australian banks are excluded from the sale of securities that are backed by assets like mortgages that can be sold in the event of a default, because they conflict with local laws giving the depositors' interests must come ahead of creditors.

The Markit iTraxx Financial index of credit default swaps insuring the debt-Europe junior 25 banks and insurers fell 10 basis points to 316 today, according to JPMorgan Chase & Co. The index rose 10 December to the highest level since April 2009 on bets the bondholders will have to share in the costs of bank bailout.

Contracts linked to the Spanish public debt fell 2 basis points to 331 basis points after the Treasury issued € 2,500,000,000 ($ 3.4 billion) of treasury bills, below the maximum target of the auction and a higher performance than paid in previous sales.

Swaps credit-default usually falls improve investor confidence and rising as it deteriorates. Contracts pay the buyer face value if a borrower defaults on its obligations, less the value of the defaulted debt. A basis point equals $ 1,000 annually on a contract protecting $ 10 million of debt.

Leveraged loans

The Standard & Poor's / LSTA U.S. leveraged loan 100 Index rose for a fifth day yesterday, up 0.12 cent to 92.16 cents. The index, which measures the 100 largest loans in first lien leveraged dollars, has returned 0.79 percent this month, so again this year to 8.56 percent. leveraged loans and junk bonds are rated below Baa3 by Moody's Investors Service or below BBB-by S & P.

In emerging markets, the extra yield investors demand to own corporate bonds rather than government bond rose 5 basis points to 233 basis points, according to JPMorgan Chase & Co. index data.

Yields on agency mortgage bonds are guiding rates in almost all new U.S. home loans after the collapse of the market not the agency in 2007 and a decline in the banks. $ 5,300,000,000,000 market includes government-guaranteed debt backed by Fannie Mae and Freddie Mac and Ginnie Mae federal agencies.

Fannie Mae Esparza

The difference between yields on the present value of coupon Fannie Mae, the greatest impact on lending rates, as trade closer to their face value of Treasury bonds to 10 years has dropped to 82 basis points from up to 15 months of 99 basis points on December 1.

An increase in spreads before the rise of yields and the outlook for bond prices and who have contributed least to the owners refinance mortgage agency bonds than the bond market this month, said Tom Sontag, senior portfolio manager Neuberger Berman in Chicago Group LLC.

"They become more attractive from the point of view of propagation: That attracted investors in them, thus preventing prices from falling further," said Sontag, whose firm oversees about $ 16 billion in structured-product investments.

The lawsuit settlement

Housing demand has fallen this year as tax credits for buyers of maturity and unemployment hovered below 10 percent. Existing home sales, which reached a record low in July, rose at an annual rate of 4.43 million in October compared with an average of 5.81 million in the last decade, the National Association of Realtors said on 23 November.

About 10.8 million households, or 22.5 percent of people with mortgages, were worth less than their debt at 30 September, according to CoreLogic Inc. additional 2.4 million were less than 5 percent of capital of Santa Ana, California-based company, real estate information, said Dec. 12.

As many as 8 million homes are in some stage of default or foreclosure, known as shadow inventory, and may be released over the next five years, according to Morgan Stanley.

"The rise in mortgage rates will not demand the removal at a time when the market is close to being in balance, but when there are still huge oversupply," Rosenberg said in a telephone interview. He cited an S & P / Case-Shiller Home Price Index shows a decrease of 1.5 percent in the three months ended in September.

Affordability

Mortgage broker returned 37 basis points more than Treasuries of similar duration of this month through December 10, the loss of 98 basis points in absolute terms, according to Barclays Capital.

"It's definitely been a significant movement in yields and that move has clearly had a direct impact on mortgage rates," said Matthew Marra, portfolio manager of fixed income in New York, BlackRock Inc., the largest asset manager.

The increase is also exacerbated a selloff in Treasuries, as investors covered by mortgages and debt managers with the projected life of roughly doubling in value due to lower average forecast for the refinancing homeowner he said.

The increased affordability of housing based on housing prices low means that the recent rise in mortgage rates will have little effect on the value of the bonds in the mortgage market not the agency, said Sontag Neuberger, who has been buying of high-risk mortgage securities.

"They remain very low rates," said Didi Weinblatt, vice president of mutual fund portfolios at USAA Investment Management in San Antonio, where he helps oversee about $ 45 billion.

High Performance

No agency debt in household debt have joined the high-performance company this month to avoid losses due to higher projected returns. The high-yield bonds have returned 0.95 percent this month, Bank of America Merrill Lynch index data show.

Typical prices of securities backed by higher option adjustable-rate mortgages rose to 53.95 cents, to 52.60 cents on November 30 and 48.21 cents on Dec. 31, according to JPMorgan Chase & Co.. Option ARMs allow borrowers to pay less than the interest due each month, adding that the unpaid amount to the overall mortgage balance.

"If rates go up another 100 basis points that have an impact? Yes, I do not think that will happen in the short term?" No, "said Sontag. "To not think that the 10-year Treasury around these levels is at fair value, you have to buy into the theory that the inflation genie is out of the bottle."