The US housing market and economy face mounting headwinds from higher mortgage costs, driven by a structural rise in fixed-income volatility, leaving the spreads on mortgage-backed securities at risk of widening.
When it rains, it pours. Mortgage spreads are set to rise as the likelihood rises that Fannie Mae and Freddie Mac are taken out of government conservatorship. This comes as another important factor looks poised to widen spreads by supporting bond volatility: the effect of the trade war on Asian current-account surpluses, particularly Taiwan’s.
