Magazine article American Banker

Auction Shows Strength in GSE Debt Market after U.S. Moves

Magazine article American Banker

Auction Shows Strength in GSE Debt Market after U.S. Moves

Article excerpt


For many, Freddie Mac's auction of $3 billion of short-term debt Monday was the first real test of the effect of federal regulators' steps to backstop the government-sponsored enterprises.

That demand topped expectations indicated to some observers that market confidence had been bolstered, though shares of Freddie and Fannie Mae continued to slide.

Freddie sold $2 billion of three-month bills at a yield of 2.309%, or 14 basis points lower than it paid for three-month debt a week earlier. However, investors demanded slightly higher interest rates than the last time for Freddie's six-month bills; it sold $1 billion at a yield of 2.496%, an increase of 7 basis points from the July 7 auction.

"The demand was stronger than usual from the same group of investor firms," said Timothy Bitsberger, a senior vice president and the treasurer at Freddie.

On Sunday the Treasury Department asked Congress for legislation that would temporarily increase the lines of credit Fannie Mae and Freddie have with it, enable the department to make equity investments in the GSEs, and give the Federal Reserve Board a role in determining their capital levels. Also Sunday, the Fed announced that it had opened its discount window to the GSEs.

Kathleen Shanley, an analyst at the New York fixed-income research firm Gimme Credit LLC, wrote in a note to clients Monday that the scheduled auction "may be one reason why federal regulators were so anxious to get their announcement" out before the market opened that day.

"Both Fannie and Freddie are highly dependent on the unsecured debt markets," she wrote.

Mr. Bitsberger, a former Treasury assistant secretary for financial markets, called Monday's sale of short-term notes "business as usual" and cautioned the market not to "read too much into these things."

But he also said that the regulators' announcements Sunday helped raise awareness of the auction. …

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