Risk is back.......

March 5 (Bloomberg) -- The extra yield that investors demand to own agency mortgage-backed securities over 10-year U.S. Treasuries reached the highest since 1986, boosting the cost of loans for homebuyers considered the least likely to default.

The difference in yields on the Bloomberg index for Fannie Mae's current-coupon, 30-year fixed-rate mortgage bonds and 10- year government notes widened about 12 basis points, to 215 basis points, or 79 basis points higher than Jan. 15. The spread helps determine the interest rate homeowners pay on new prime mortgages of $417,000 or less. A basis point is 0.01 percentage point.

Some owners have been selling the debt ``to make room for the cheaper alternatives or to lighten up because they anticipated further unraveling'' in the financial markets, UBS AG analysts led by Laurie Goodman wrote in a report yesterday. Agency securities, which are guaranteed by government-chartered companies Fannie Mae and Freddie Mac or federal agency Ginnie Mae, were the ``most liquid'' bonds they could sell, they wrote.