Mortgage securities stare down end of QE3 as rally persists

New York

THE end of the Federal Reserve's third round of bond purchases is proving to be a non-event for mortgage-backed debt.

That's partly because even though the US central bank won't be adding more home-loan securities to its balance sheet, policymakers will still be buying enough to prevent its holdings from shrinking.

Those purchases are having a greater impact as the pace of net issuance slows to a quarter of the amount last year amid a weaker property market.

The US$5.4 trillion market for government-backed mortgage bonds is defying predictions for a slump tied to the wind-down of the Fed stimulus programme, whose completion economists predict is set be announced this week.

Yields on benchmark Fannie Mae notes have shrunk 0.14 percentage point this year relative to government debt, narrowing to within 1.09 percentage points of an average of five and 10-year T…