Spreads Widen In Safe-Haven Bond Jump

U.S agency and mortgage-backed debt yield spreads widened as both sectors trailed a Treasury market rally on Tuesday spurred by investors clamoring for safe assets on mounting subprime mortgage woes.

Growing subprime lender troubles, rising delinquencies and foreclosures driven by loans made to borrowers with weak credit, and softer-than-expected retail sales data fueled talk that the Federal Reserve might cut interest rates.

“There’s a contagion effect,” said Lance Pan, director of credit research at Capital Advisors Group in Newton, Massachusetts. ” But we don’t view this as a fundamental reason to dislike the sectors — the fundamentals remain quite solid, he said of the mortgage and agency segments.