MORTGAGE-BOND YIELDS THAT GUIDE LOAN RATES FALL

Yields on Fannie Mae and Freddie Mac mortgage securities that guide home-loan rates declined to the lowest in three weeks, signaling falling financing costs after a recent increase.

Fannie Mae's current-coupon 30-year fixed-rate mortgage bonds dropped about 0.02 per centage point to 4.43 per cent in New York, down from an eight-month high of 4.67 per cent on April 5, according to data compiled by Bloomberg.

Yields declined as benchmark Treasury rates retreated and premiums over 10-year government notes on mortgage-backed securities with US-supported guarantees held near record lows, withstanding the end last month of the Federal Reserve's unprecedented purchases of $1.25tn of the bonds as investors' demand for debt bolsters credit markets.

'The Fed ended its MBS purchase program, and the world did not end,' Chris Flanagan and Tim Isgro, analysts in New York at Bank of America Corporation, wrote in a weekly report April 9.

The average rate on a typical 30-year fixed-rate mortgage jumped to 5.21 per cent in the week ended April 8, the highest since August, according to McLean, Virginia-based Freddie Mac. Rising Treasury yields amid record US debt auctions and signs of an improving economy drove the advance, before recent drops.

Today, Treasury 10-year yields reached the lowest in almost two weeks, after Alcoa Inc. reported lower-than-estimated quarterly sales and Pacific Investment Management Company, manager of the biggest bond fund, said developed economies face deflation. Mortgage rates fell to a record low of 4.71 per cent in early December, from a 2009 high of 5.59 per cent in June.

The difference between yields on Washington-based Fannie Mae's securities and 10-year Treasuries widened about 0.02 per centage point today, to about 0.62 per centage point, Bloomberg data show. That spread reached 0.59 per centage point on March 29, as the Fed's purchases of agency mortgage bonds approached a conclusion two days later.