Yields on Fannie Mae’s 3.5 percent, 30-year securities have soared 0.38 percentage point in the past two days to a 19-month high of 3.1 percent. The price tumbled 1.3 cents yesterday, the most since 2010, to 102 cents on the dollar, before falling to 101.6 cents as of 12 p.m. in New York. The average rate on new loans packaged into such bonds rose last week to 3.98 percent, the sixth straight increase, from 3.35 percent at the start of May, Freddie Mac surveys show.
Bernanke said at a news conference in Washington yesterday that the rise in mortgage rates hasn’t been “so dramatic” as he suggested the housing market may be strong enough to withstand higher borrowing costs. Investors sold bonds that guide home-loan rates as they focused on his expectation that the Fed’s $85 billion in monthly debt buying will slow later this year and end around the middle of 2014.
The tone of Bernanke’s comments was “very assuring and soothing, but that’s like a mother telling her baby that she will be leaving in a very gentle voice,” said Tae Park, a money manager in New York at Societe Generale SA who focuses on mortgage bonds. “The baby will still have a fit.”
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by Jody Shenn (www.bloomberg.com)