Relative yields on mortgage-backed securities that guide new loan rates fell to the lowest in five months as investors wager the Federal Reserve is on standby to expand its holdings if the U.S. economy or Europe’s sovereign debt crisis worsens.
Mortgage derivatives tied to the biggest U.S. home loans are plummeting in a divergence from the underlying bonds as firms from TCW Group Inc. to Wells Fargo & Co. say the credit-default swaps are sending false signals.
Government-backed U.S. mortgage bonds underperformed Treasuries in August by the most since November 2008 amid concern federal intervention will spark a refinancing wave that reduces the value of the securities.
Goldman Sachs Group Inc. approached the Federal Reserve Bank of New York with a bid for a block of the mortgage bonds assumed from American International Group Inc., prompting the central bank to weigh an auction of the debt, three people familiar with the matter said.
Wall Street bond dealers cut their holdings of corporate securities to a more than eight-year low as banks reduced risk amid the European sovereign debt crisis and concerns that the economic recovery is faltering.
Standard & Poor’s is giving a higher rating to securities backed by subprime home loans, the same type of investments that led to the worst financial crisis since the Great Depression, than it assigns the U.S. government.
The Federal Reserve Bank of New York may sell a block of the mortgage bonds it assumed from American International Group Inc. after being approached by a potential buyer, according to two people familiar with the matter.
Yields on Fannie Mae and Freddie Mac mortgage securities that guide home-loan rates jumped to their highest levels in almost six months, suggesting borrowing costs will continue to climb from record lows.
Three years after the collapse of Bear Stearns Cos., which helped fuel the worst financial crisis since the Great Depression, former bond executives of the firm are running businesses at one-time rivals, including Bank of America Corp. and Goldman Sachs Group Inc.