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Mortgage-Bond Market Roiled as Bernanke Report Fuels Speculation

NEW YORK - Fannie Mae and Freddie Mac mortgage bonds, which guide home loan rates, gained yesterday while those backed by high-cost debt declined on speculation the government may boost efforts to aid the housing market.

Yields on Fannie Mae’s current-coupon 30-year fixed-rate mortgage securities, or those trading closest to face value, declined about 4 basis points to 84 basis points more than 10- year US government debt, the tightest spread since May 19, according to data compiled by Bloomberg.

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The company’s 6.5 percent securities, whose underlying loan rates average about 7 percent, fell almost 0.2 cent on the dollar to about 111 cents.

The current-coupon bonds, which guide loan rates, extended this month’s gains relative to Treasuries after a report from Federal Reserve chairman Ben S. Bernanke on Wednesday called the weakness in the housing market a “significant barrier’’ to US economic health.

“The white paper . . . emphasizes that housing is still a key problem with no easy solution,’’ Morgan Stanley analysts wrote yesterday in a note to clients.

They see a higher probability of a third round of bond-buying, called quantitative easing, by the Fed.

The Fed paper also suggests a higher probability of an additional expansion to the Home Affordable Refinance Program for Fannie Mae and Freddie Mac borrowers with little or no home equity, the analysts said.

Speculation about changes to the refinance program was also fueled by a Jan. 4 note from Jaret Seiberg, a policy analyst at Washington Research Group. He theorized that President Obama could install a housing advocate at the Federal Housing Finance Agency, which regulates both Fannie Mae and Freddie Mac. The White House has no plans for a new mass mortgage refinancing program, an administration official with knowledge of the matter said.

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