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		Home Page News You Can Use U.S. mortgage bonds rise, Fannie portfolio shrinks Reuters, 02.17.04, 10:53 AM ET NEW YORK, Feb 17 (Reuters) - U.S. mortgage bonds edged up on Tuesday, following a good week buoyed by strong buying due to stable Treasury yields and a steady interest rate outlook. Mortgage-backed securities trailed Treasuries a bit as selling by mortgage lenders outweighed buying by banks and other investors. But overall volume in early trade was lighter than usual, analysts said. Fannie Mae said on Tuesday its investment portfolio shrank in January for a fourth straight month. The biggest buyer of U.S. mortgages has limited its purchases of mortgages, which have become expensive due to competing bank demand. Active 30- and 15-year MBS were up as much as 4/32 and their yield spreads over comparable Treasuries were roughly one basis point wider than late on Friday, analysts said. The yield on Treasury 10-year <US10YT=RR> notes was at 4.05 percent, flat from late Friday. The U.S. bond market market was closed on Monday for the Presidents Day holiday. Fannie Mae's investment portfolio shrank 14.6 percent last month after a 10 percent decline in December. In a four-month span, the company's retained portfolio has fallen by $30 billion to $886.7 billion. Fannie Mae and other investors that focus on total returns have scaled back their purchases since late 2003. On the other hand, banks' voracious appetite for mortgage securities has not abated because commercial loan demand has not ratcheted higher and it has remained profitable for them to maintain "carry" trades, market players said. In a carry trade, a player takes out a cheap short-term loan and invests the money in longer-dated bonds like MBS. The market has waffled over whether profitable carry trades can be sustained in the second half of the year if the Federal Reserve raises short-term rates in the near future. But Fed Chairman Alan Greenspan soothed those concerns last week when he told Congress the Fed can be "patient" in raising rates. "The carry game is back. It obviously benefits spread products and that includes mortgages," said Michael Cheah, who manages $1.5 billion in bonds at AIG SunAmerica in Jersey City, New Jersey.   Back to Original Article: News You Can Use   Continue with: Japan's Economy Grew at Fastest Annual Pace in 13 Years in Fourth Quarter U.S. Housing Starts Fall, Store Sales Up OPEC in a Better Light Residential Construction Activity Slows Economy, Jobs Key in Wis. Primary Vote Economy, Jobs Key in Wis. Primary Vote Part Two Short-term T-bill rates dip Dollar Down Across Board Two banks offering small businesses free checking Who are those guys? Google expands Web index as Yahoo begins to cut ties with longtime partner Small-Caps Still a Good Long-Term Buy World economic climate best since '00-Ifo/ICC poll Econ Team Argues Bush Policies To Create Jobs Japan economy surges in Oct-Dec on strong exports Unchecked euro rise would hit recovery-German banks
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