Mortgage Rates Balloon

Treasury yields have been rising for months, but their rise did not cause any dislodging of the private credit markets as yields on corporate bonds and mortgage securities fell.

Part of the reason is the Federal Reserve's promise to purchase up to $1.25 trillion of mortgage securities and $200 billion of agency securities. Thus far the Fed has purchased about $425 billion of mortgage securities and $80 billion of agency securities.

Until last week, the Fed's purchases were enough to keep investors in the game so to speak, but the rise in Treasury yields became so great that the dam broke and mortgage rates began to climb. The increase, which will be tabulated by Freddie Mac (FRE - commentary - Trade Now) in its weekly rate survey, could well be about three-eighths to a half percentage point.

We know this by tracking the actively traded mortgage-backed securities. For example, the Fannie Mae (FNM - commentary - Trade Now) 4.0% mortgage-backed securities hovered around 4% for months before its yield climbed to about 4.5% -- all in a week's time.

The Fannie 4.5% coupon has moved from about 4.1% to about 4.6%. Consumer rates track MBS rates very closely and the 4.0% coupon is the one that was mirroring consumer rates most.

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Know What You Own: A number of bond-related ETFs might be of interest to readers of this column, including the SPDR Barclays Short-Term Municipal Bond ETF (SHM - commentary - Trade Now), the SPDR Barclays Municipal Bond (TFI - commentary - Trade Now) ETF, the iShares Barclays 20+ Year Treasury Bond (TLT - commentary - Trade Now) ETF, the iShares Barclays 7-10 Year Treasury Bond (IEF - commentary - Trade Now) ETF, the iShares Barclays 1-3 Year Treasury Bond (SHY - commentary - Trade Now) ETF, the iShares Barclays 3-7 Year Treasury Bond (IEI - commentary - Trade Now) ETF and the iShares Barclays 10-20 Year Treasury Bond (TLH - commentary - Trade Now) ETF. For more on the value of knowing what you own, visit TheStreet.com's Investing A-to-Z section.

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Tony Crescenzi is the chief bond market strategist at Miller Tabak + Co., LLC, and advises many of the nation's top institutional investors on issues related to the bond market, the economy and other macro-related issues. At the request of the Federal Reserve, Crescenzi is a regular participant in the board's Livingston Survey of economic forecasters. He is also the author of the revised investment classic, The Money Market, first published in 1978 by Marcia Stigum, and The Strategic Bond Investor. At the time of publication, Crescenzi or Miller Tabak had no positions in the securities mentioned in this column, although holdings can change at any time. Under no circumstances does the information in this column represent a recommendation to buy or sell stocks. Crescenzi also is the founder of Bondtalk.com, a popular Web site covering the bond market and the economy. Crescenzi appreciates your feedback; click here to send him an email.

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