GSEs' Liquidity At the Time They Were Taken Over

Fannie Mae, Freddie Mac debt funding smooth  

3 September 2008 09:53 AM Reuters News 

Fannie Mae and Freddie Mac drew solid demand for $5 billion of new securities on Wednesday even as large overseas investors cut their exposure to the two troubled housing finance companies. The latest sales underscored their continued access to debt funding that is key to running their businesses and supporting the U.S. housing market. Freddie Mac sold $3 billion of two-year notes to yield 0.975 percentage point more than Treasuries, up from 0.88 point at its July sale of the same maturity. Investors were heartened that Asian demand rose slightly from the prior offering given that overseas investment has fallen off in recent months after the pair reported more than $13 billion in losses. Traders said the Freddie note issue attracted more orders than the amount offered, and the yield premium shaved to about 96 basis points soon after the pricing. 

______________________________________

Freddie Mac sells $3B in two-year debt By ALAN ZIBEL AP Business Writer 

3 September 2008 The Associated Press. 

 WASHINGTON (AP) - Mortgage finance company Freddie Mac sold $4 billion in debt this week at prices that show investors' fears about the company are still elevated, but lower than last month. Investors are watching the debt sales of Freddie Mac and its government-sponsored sibling company, Fannie Mae, to gauge whether they are having problems funding their operations without government support. The companies' ability to sell debt has diminished expectations that a government rescue is imminent. Investors are demanding a smaller premium for Freddie Mac's debt than last month, when fears about the company seized Wall Street. Freddie Mac's $3 billion in two-year debt was auctioned Wednesday at a yield of nearly 3.23 percent, or almost 0.98 of a percentage point above comparable Treasury notes. 

_____________________________________________

Debt languishes despite strong sales By Julie Haviv, Reuters News 

3 September 2008 03:44 PM 

Fannie Mae and Freddie Mac "federal agency" debt underperformed Treasuries on Wednesday, despite evidence the two government-sponsored enterprises continue to have relatively unhindered access to debt funding Fannie Mae said it sold $2 billion of short-term debt at lower interest rates compared with a week earlier. . Freddie Mac said it sold $3 billion of new two-year reference notes. The issue, due Oct. 25, 2010, was priced at 99.782 to yield 3.229 percent, or 97.5 basis points more than U.S. Treasuries. 

Investors have worried that the two companies' weakened capital positions would hurt their ability to sell debt, but at the right price, agency debt sales have managed to draw demand. Buying from central banks, however, has waned noticeably and if this continues it could hurt agency debt valuations since they are a dominant investor base, analysts say. But despite what appears to have been successful sales of agency debt, the sector continues to languish, with many market participants opting to stay sidelined, according to Margaret Kerins, an analyst at RBS Greenwich Capital in Chicago. "The market is still fragile and investors are looking for clarity on the type and level of Treasury intervention that will take place, if at all," she said. "If something does happen, it would be a catalyst for tighter spreads as it would reinforce their government relationship," she said. Fannie Mae 5.375 percent 10-year benchmark notes due June 12, 2017, were 2 basis points wider at 75.5 basis points bid and 74 basis points offered over Treasuries. Yield spreads in the two-year sector ended 0.5 to 1.5 basis points wider while those in the five-year sector ended 1 to 1.5 basis points wider. In July, Congress gave the U.S. Treasury authority to lend money to or acquire equity in Fannie Mae and Freddie Mac if needed to prop them up. That prospect, however, has diminished significantly, with the two GSEs successfully drawing demand for debt sales and a multitude of Wall Street analysts have said the companies have no immediate need for capital. The debt markets continue to provide GSEs with liquidity and the ability to roll over maturing paper, according to Priya Misra, an analyst at Lehman Brothers in New York. The discount note auctions in August have seen bid-to-cover ratios similar to those of the past few months, her team said in research published Friday.