The Appeal of Mortgage Bonds

Recall the line from Hamlet imploring us to neither a borrower nor a lender be? Shakespeare was spot-on about so much, but not credit. Lenders do hold the stronger hand. A 30-year, fixed-rate mortgage, with the principal guaranteed by the Federal Housing Administration, currently originates at 6.6%, marking an unusually big spread over the 30-year Treasury bond’s yield, now 3.9%. Even Series I savings bonds are down from 9.6% to 4.3% and are set to shrink again in November. (Yields and other data are as of June 30.)

-  JEFFREY R. KOSNETT

INCOME INVESTING 

One explanation for the high rate is that anxious lenders fear economic distress and missed mortgage payments. Also, because there are so few takers for costly home loans, lenders reason they may as well soak those folks who are cavalier or desperate enough to apply. The result is that bond pros are duly excited about U.S.-backed mortgages. “The agency mortgage market is at an extremely attractive price for now,” says Eric Bernum, of Smith Capital Investors.