Mortgage Bonds in Worst Start Against Treasuries in 18 Years

Government-backed U.S. mortgage bonds are off to their worst start to a year relative to Treasuries since at least 1997 as investors in the $5.5 trillion market brace for a surge in homeowner refinancing.

Returns on mortgage securities guaranteed by Fannie Mae, Freddie Mac or Ginnie Mae were 0.6 percentage point less than those on similar-duration government debt this month through yesterday, according to Bank of America Merrill Lynch index data. Ginnie Mae securities, which package Federal Housing Administration loans, have underperformed Treasuries by 0.9 percentage point.