Mortgage Spreads Blowing Out Toward March Levels

Yields on agency mortgage securities compared to U.S. Treasuries approached a five-month high today. Spreads rose to 215 basis points in intraday trading today, the highest level since early Mach 10, just prior to the crisis that leveled Bear Stearns, according to data compiled MKM Partners analyst Mike Darda. Over the past drbrtsl several weeks, the spread has been edging toward the 22-year high of 238 basis points set in March.

The so-called "agency mortgage bonds" amount to a $4.5 billion market guaranteed by federal agency Ginnie Mae or government-backed Fannie Mae and Freddie Mac. The rise of the spreads is widely viewed as a sign of stress in the financial system. More specifically, many believe that despite government moves to shore up Fannie and Freddie, the odds of the guaranteed bonds defaulting has increased.