In 2012 the housing debt rallied more than 41 % and currently the world’s major bond managers are betting on this rally. The debt is also expected to beat related fix income investments in the current year in the wake of strengthening the real estate sector in the US.
Major investment companies are speculating significant gains in the mortgage bonds even without the support of federal government. Mortgage bonds tied with subprime loans are expected to rise after investors and hedge funds piled into the market in 2012.
Last year the Federal Reserve efforts to push mortgage rates to significant lows resulted in reversal of a six year slump in the housing sector. Following the development the non agency market experienced vital growth.
Since the end of last year home rates climbed to nearly 23.7 trillion US dollars after adding more than 1.3 trillion US dollars. Analysts expect the rise in prices by 3.4 % in the current year.
According to Barclays PLC (ADR)(NYSE:BCS) data the non agency bonds collapsed in 2007 beat most fixed income assets in the last year. The bonds were backed by subprime mortgages. That compares with a 2.6 % return for mortgage bonds guaranteed by government agencies and a gain of nearly 16 % for high yield and high risk company debt.
Investors got concerned about the potential forced selling of assets by banks after the Europe’s sovereign debt crisis ignited last year. Since then the non agency debt bounced back after it lost 5.5 %. After the European crisis the Federal Reserve Bank of New York initiated a plan to auction toxic mortgage bonds it inherited during the American International Group’s bailout in 2008.
Credit Suisse Group and JPMorgan Chase & Co. (NYSE:JPM) analysts expect housing to surge next year after prices soared 4.3 % in a year since October. According to a report from National Association of Realtors, sales of previously owned homes strengthened nearly 5.9 % in November from the previous month to get the highest in three years.
JPMorgan Chase & Co. (NYSE:JPM) shares surged 1.87% to $44.79 in premarket, Barclays PLC (ADR) (NYSE:BCS) shares soared .46% to $17.92 in premarket.