Posted By thestatedtruth.com on March 8, 2010

March 8 (Bloomberg) — Yields on Fannie Mae and Freddie Mac mortgage securities that guide U.S. home-loan rates are trading at the lowest relative to Treasuries on record, even as the scheduled end of Federal Reserve purchases approaches.

The difference between yields on Washington-based Fannie Mae’s current-coupon 30-year fixed-rate mortgage bonds and 10- year Treasuries narrowed 0.02 percentage point today to about 0.63 percentage point to match the smallest spread since at least 1984, according to data compiled by Bloomberg.

Spreads on agency mortgage bonds have held near lows while the unprecedented Fed program, in which the central bank is buying $1.25 trillion of the debt, nears its March 31 conclusion. Some investors consider the debt more attractive at tighter nominal spreads because of declines in expectations for interest-rate volatility, affecting how certain they can be about how long it will remain outstanding, according to JPMorgan Chase & Co.

Spreads for the Fannie Mae securities on a so-called option-adjusted basis, which takes into account prepayment uncertainty, against interest-rate swaps have widened to negative 0.03 percentage point from as low as negative 0.22 percentage point on Dec. 21, according to Bloomberg data.

Elsewhere in credit markets, at least $12.3 billion of U.S. corporate bonds were marketed today, the busiest since Feb. 4 when volume reached $18.85 billion, Bloomberg data show. DirecTV, the El Segundo, California-based satellite-television provider, sold $3 billion of 5-, 10- and 30-year notes. Bank of America Corp., the largest U.S. bank by assets, sold $2.5 billion of five-year notes.

In Iran, Pars Oil & Gas Co. issued $1 billion of euro- denominated bonds to help boost the development of its giant South Pars gas field, Press TV reported. The National Iranian Oil Co., POGC’s parent, has guaranteed a return of as much as 8 percent on the debt, the state-run news channel said.

Harrah’s Entertainment Inc. debt rose in trading today after lenders agreed to extend $5.5 billion of maturities to 2015, giving the world’s biggest casino company five years to make any material repayments.

In the U.S., the cost of protecting against corporate defaults fell for a second day. The Markit CDX North America Investment-Grade Index, linked to credit-default swaps on 125 companies, declined 3 basis points to 82.5 basis points as of 2:22 p.m. in New York, according to CMA DataVision. That’s the lowest since Jan. 14. The index typically declines as investor confidence improves.

Credit-swaps pay the buyer face value if a borrower defaults in exchange for the underlying securities or the cash equivalent. A basis point equals $1,000 a year on a contract protecting against default on $10 million of debt for five years.

Full article at      http://www.bloomberg.com/apps/news?pid=20601087&sid=aKXhj8HzX8Ao&pos=3

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