Fannie Mae (FNMA)

[Patswil]

Don't Be Out Of Fannie And Freddie Leading Up To Q2 Earnings

http://seekingalpha.com/article/3987828-fannie-freddie-leading-q2-earnings

Freddie Mac reports Q2 Earnings on August 2, and Fannie Mae reports Q2 Earnings on August 4.

The sharp decline in Treasury yields means that another draw is almost certain to be required.

Due to the complications that another Treasury draw would bring about, there is a slight possibility that Treasury will allow the GSEs to be recapitalized before Q2 earnings are announced.

Declining US 10-Year Treasury Yield Means Another Treasury Draw is Almost Certain

Both Fannie Mae's (OTCQB:FNMA) and Freddie Mac's (OTCQB:FMCC) earnings are sensitive to interest rates. When Treasury yields tumble, both the GSEs record losses on interest rate sensitive derivatives.

In Q1, net fair value losses were $2.8 billion for Fannie Mae and total fair value losses were $2 billion (after-tax) for Freddie Mac. Fair value gains (losses) fluctuate with the movement of interest rates. Interest rate volatility results in volatile earnings quarter-on-quarter for both Fannie and Freddie.

Fannie Mae

Q1'16 Q4'15 Q3'15 Q2'15
Net Fair Value Gains (Losses) ($2.8 billion) $135 million ($2.6 billion) $2.6 billion
Fair value gains (losses) can be rather volatile and can shift from gains to losses on a quarterly basis depending on interest rates.