Tuesday, August 5, 2008
Agency MBS yield spread widens for 4 month high
The yield spread between Fannie Mae's current coupon 30-y fixed rate mortgage bonds and 10-year government notes reached 207 basis as of 08/04/2008. The spread hit 22 years high of 238 basis points in March. Spreads widened on concern that Fannie and Freddie might cut purchases for their 1.5 trillion portfolio and credit jitters have kept foreign invesetors on the sidelines. Russian has bought less of $40 bil of Agency bonds recently. Larger guarantee fees charged by GSEs, higher mortgage rates will push down net issuance of Agency MBS, which as shrank from 50 to 60 bil per month in the 1st half to 30-40 bil in the second half of the year.