Bond Market Soaring

By Jody Shenn  |   2008-12-22  |     NEWSPAPER EDITION

THE percentage of new home loans in the United States being packaged into bonds is at an all-time high, as government-supported securities keep lending from shutting down.

The securitization rate, or amount of new home loan bonds compared to new loans, rose to 78 percent in the first nine months of 2008, newsletter Inside MBS & ABS reported.

Issuance of securities guaranteed by government-chartered Fannie Mae and Freddie Mac or US agency Ginnie Mae totaled US$956 billion, while "non-agency" bonds shriveled to US$10.1 billion, the newsletter said.

The higher securitization rate underscores how banks are retreating from holding on to residential loans and the importance of the US$5-trillion agency-mortgage-bond market in preventing a more severe credit crunch, Bloomberg News said.

The fact the market has remained open "suggests that, at least under the most stressed conditions, some form of government backstop may be necessary to ensure continued securitization of mortgages," Federal Reserve Chairman Ben Bernanke said in October.

The central bank said last week that it may expand a plan to lower home-loan rates by buying up to US$500 billion of agency mortgage bonds and US$100 billion of agency corporate debt.