Obama Win Stokes Refinancing Risks for Bond Investors: Mortgages

Obama Win Stokes Refinancing Risks for Bond Investors: Mortgages

Nov. 8 (Bloomberg) — President Barack Obama’s re-election is fueling investor concern that homeowner refinancing is set to increase after debt yields tumbled and amid speculation his administration will pursue more aggressive measures to boost the housing recovery.

Real estate investment trusts that buy mortgage debt tumbled the most in a year yesterday on the expectation that more homeowners would be able to prepay mortgages. The companies are also being pressured because lower yields on new investments would squeeze the firms’ earnings and dividends. The policies of Obama and the Federal Reserve, whose chairman Republican challenger Mitt Romney had said he would replace, have expanded opportunities for homeowners to qualify for new loans while sending borrowing costs to record lows.

‘The continuation of the policies that started last year or so are basically assured now,” said Vitaliy Liberman, a portfolio manager at Los Angeles-based DoubleLine Capital LP, which oversees more than $45 billion.

Government-backed mortgage bonds used by lenders to package and sell new loans rallied yesterday along with Treasuries, on speculation Obama’s win will make it tougher for politicians to avert a so-called fiscal cliff of spending cuts and tax increases, fueling a flight to the safety of government securities, and make it easier for the Fed to support the economy by buying the debt and restraining short-term rates.

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