Freddie, Fannie Pay More To Raise New Short-Term Debt
09/24 12:12 PM
NEW YORK (Dow Jones)--Yields on newly issued Fannie Mae (FNM:$1.89,00$0.58,0044.27%) and Freddie Mac (FRE:$1.97,00$0.65,0049.24%) short-term bills skyrocketed Wednesday as investors demanded much higher risk premiums to compensate for sharp swings in short-term credit markets.
Fannie sold $1 billion of three-month bills at a yield of 2.972%, 0.84 percentage point higher than the 2.131% yield it paid last week at an auction of similar bills.
The housing giant sold $1 billion of six-month bills at a yield of 3.459%, 0.82 percentage point over the 2.635% yield Fannie paid last week for bills of this maturity.
"The short-term funding market appears to be in disarray," said Jim Vogel, senior vice president on the FTN Financial.
Freddie, which completed its $2 billion short-term bills auction Monday at more favorable terms than Fannie, felt the impact of the market dislocation Wednesday when it sold the same amount in one-month bills.
Freddie paid a yield of 2.655%, a 37-basis-point increase from last month's yield on similar bills.
Some market participants felt falling Treasury yields have largely contributed to the higher financing costs the mortgage companies had to pay.
"The flight-to-quality bid to Treasurys has sidelined traditional investors in agency paper," said Margaret Kerins, managing director and head of agency strategy at RBS Greenwich in Chicago.
The higher yields agency bills were driven by outsized risk premiums investors demanded. For instance, Fannie's $1 billion in three-month bills sold at 252 basis points over comparative Treasury yields.
This is in stark contrast to the less than 100-basis-points over Treasury yields these bills had priced in recent months.
Similarly, risk premiums on Fannie's six-month bills widened to 188 basis points and Freddie's one-month bills stretched to 248 basis points over comparative Treasury yields that had dipped to 0.17%.
-By Prabha Natarajan, Dow Jones Newswires; 201-938-5071; prabha.natarajan@ dowjones.com
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(END) Dow Jones Newswires
09-24-081212ET
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