A global bond-market slump pushed yields on benchmark U.S. mortgage securities to the highest level in more than seven months, signaling potential pressure on the American housing market amid its peak selling season.
Signs of an accelerating recovery in residential real estate this year have been tempered by declining affordability as prices rise, a trend that higher borrowing costs could exacerbate. The selloff in government-backed home-loan securities and other U.S. debt reflects pressure from overseas markets, according to Brad Scott, a mortgage-bond trader at Royal Bank of Canada's capital-markets unit.
"We are being led down by German bunds and European government bonds," Scott said in a telephone interview from New York.
Yields on Fannie Mae securities that guide borrowing costs because they're used to package new 30-year loans for sale rose 0.11 percentage point to 3.08% as of 12:24 p.m. Wednesday in New York, according to data compiled by Bloomberg. They touched the highest since Oct. 7 and are up from a 2015 low of 2.43% in January. The five-year average is 3.15%.
Mortgage-bond yields are a main driver of home-loan rates, but changes in the debt market don't translate precisely into changes in borrowing costs because lenders can adjust their margins. A measure of lender profitability known as the primary-secondary spread jumped early this year before declining more recently, according to data compiled by Bloomberg.
Thirty-year fixed-mortgage rates on Wednesday rose to 3.82%, up from the previous week's average of 3.74%, according to Zillow Group Inc. data.
While an index of pending home resales climbed 3.4% in April to the highest level in nine years, actual existing-home transactions dropped 3.3% during the month, according to National Association of Realtors data.
Increases in mortgage-bond yields are outpacing gains in Treasury yields, according to one spread measure. Yields on the Fannie Mae bonds reached about 1.05 percentage point more than an average of those on five- and 10-year Treasuries, the highest since November, according to Bloomberg data.
Foreign investors that had been active in buying U.S. dollar dominated debt as yields climbed in recent months have backed away, Scott said. At the same time, U.S. banks are stepping up their buying to take advantage of the increases, helping "make this move very orderly versus what could have been expected, given the magnitude of it," he said.
