By Jody Shenn Dec. 4 (Bloomberg) -- Yields on Fannie Mae and Freddie Mac mortgage securities climbed to the highest in a month amid signs the employment market is improving, signaling that interest rates on new home loans may extend a rebound from record lows. Yields on Washington-based Fannie Mae’s current-coupon 30- year fixed-rate mortgage bonds climbed 0.13 percentage point to 4.29 percent at 11:05 a.m. in New York, the highest since Nov. 6, according to data compiled by Bloomberg. That’s up from 3.90 percent on Nov. 30, suggesting a similar rise in mortgage rates, which declined to a record low average in the latest week. The gain today mostly tracked an increase in benchmark Treasury yields, which climbed after a report that the U.S. economy lost fewer jobs than forecast last month. The Federal Reserve’s buying of $1.25 trillion of so-called agency home-loan securities has kept the gap between yields near the tightest on record for much of this year in a bid to revive home prices that may be succeeding. “The housing market is in the early stage of recovery,” Glenn Schultz, a mortgage-bond analyst at Wells Fargo & Co. in Charlotte, North Carolina, wrote in a Dec. 2 report. “However, we believe that government support is likely needed through” the first half of next year “before the recovery will be self- sustaining.” Yields on agency mortgage bonds are guiding rates on almost all new U.S. home lending following the collapse of the non- agency market in 2007 and a retreat by banks. The $5.4 trillion market includes securities guaranteed by government-supported Fannie Mae and Freddie Mac or federal agency Ginnie Mae. Mortgage Rates The average rate on a typical 30-year fixed-rate mortgage dropped 0.07 percentage point to a record 4.71 percent in the week ended yesterday, according to McLean, Virginia-based Freddie Mac. That was down from the year’s high of 5.59 percent in June. An S&P/Case-Shiller index for 20 metropolitan areas showed home values rose in each of the five months through September after a record 33 percent drop from a July 2006 peak. While lowering financing costs for home buyers, the recent decline in mortgage rates failed to spark the same level of refinancing of existing loans as seen earlier this year after most “highly qualified borrowers” already cut their costs, Credit Suisse Group analysts including Mahesh Swaminathan in New York wrote in a report yesterday. The Mortgage Bankers Association’s seasonally adjusted index of refinancing applications in the latest week was down 61 percent from a high this year in January. The difference between yields on the Fannie Mae bonds and 10-year government notes widened today by about 0.01 percentage point to 0.79 percentage point, Bloomberg data show. On Nov. 24, the spread was at 0.68 percentage point, the smallest since 1992. To contact the reporter on this story: Jody Shenn in New York at jshenn@bloomberg.net

Source