Investors in the giant US mortgage debt market have been growing more confident that they will be repaid, in spite of the serious problems experienced by Fannie Mae and Freddie Mac.

Risk premiums for mortgage bonds fell late last week after days of volatile trading.

Rates on 30-year fixed mortgages dropped to 6.13% from 6.25% last week, according to BankRate.com. Mortgage rates, however, are up from under 6% in May.

While equity investors are afraid capital raisings would dilute the value of their holdings, talk of contingency plans for the failure of a government-sponsored enterprise has raised confidence in the credit markets that the government will stand behind the mortgage-backed debt guaranteed and issued by the GSEs.

Financial Times

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