Magazine article American Banker

GSEs' Hard Stance on Bill Gives Their Debt a Boost

Magazine article American Banker

GSEs' Hard Stance on Bill Gives Their Debt a Boost

Article excerpt

Last week's hearings on a bill to toughen oversight of Fannie Mae and Freddie Mac reassured the market for the two government-sponsored enterprises' debt. Fannie and Freddie officials were stubborn in testifying against the bill before a House Banking subcommittee last Tuesday, which seemed to confirm predictions that the legislation would go nowhere this year. Accordingly, investors bid up the price of agency debt securities, pushing yields lower. Friday morning, 10-year agency bonds were trading at yields 15 basis points lower than the 10-year swap rate. A week before, they had been trading only 11 basis points lower. In March, before Treasury undersecretary Gary Gensler's congressional testimony shook investors' confidence in Fannie and Freddie debt, 10-year agency bonds yielded 20 basis points less than the swap rate. "The market believes the Gensler genie is halfway back in the bottle," said Arthur Q. Frank, director of fixed-income research at Nomura Securities International Inc. The swap rate is increasingly being used instead of Treasury bonds as the benchmark for the credit markets. It represents the cost to a high-rated financial institution of entering into an interest rate swap agreement. In his March testimony, Mr. Gensler backed some provisions of the oversight bill, which was introduced by Rep. Richard H. Baker, R.-La., in February. Specifically, Mr. Gensler said the Treasury would support a repeal of a conditional line of credit that Fannie and Freddie have with the Treasury. …

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