PrefBlog

Freddie Mac had a gushing review on Bloomberg today:

Freddie Mac rose 17 percent in New York trading after a $2 billion sale of short-term debt stoked confidence the second-largest U.S. mortgage-finance company can still attract investors.
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Freddie Mac sold $1 billion of three-month notes at a yield of 2.58 percent, the company said today. That translates to about 90 basis points more than similar-maturity U.S. Treasuries and 23 basis points less than the three-month London interbank offered rate. The spreads from last week’s sale were 61 basis points over Treasuries and 32 basis points below Libor, according to Stone & McCarthy Research Associates.

The company also sold $1 billion of six-month debt at a yield of 2.858 percent, a spread of about 92 basis points above Treasuries and 25.5 basis points below Libor; compared with 80 basis points and 32 basis points last week. A basis point is 0.01 percentage point.

Well … it’s nice that they were able to finance through LIBOR, but let’s not get carried away! Let’s see how well they can finance the next month’s needs:

Fannie has about $120 billion of debt maturing through Sept. 30, while Freddie has $103 billion, according to figures provided by the companies and data compiled by Bloomberg.

… on the bond market, rather than the Money-Market, before breaking out the champagne. Unless my trusty calculator has let me down, $2-billion is less than half their daily quota until September 30 … each.

Fortunately for oenophiles, there is an excuse for some bubbly. PerpetualDiscounts were up 21bp today, bringing the total return index back to slightly above its June 30 levels … OK now it’s time to start working on June (a really, really lousy month).

The perpetualDiscount index now has a weighted average mean yield to maturity of 6.11%, equivalent to 8.55% interest at the standard 1.4x equivalency factor. Long corporates now yield in the 6.15-6.20% range, so the pre-tax interest-equivalent spread is now about 235bp.

There were fifteen other index-included $25-pv-equivalent issues trading over 10,000 shares today.

Update: Dealbreaker passes on a rumour that Fed Pressures Treasury Not To Wipe Out Fannie Mae Preferreds:

The Federal Reserve has been quietly pressuring the Treasury Department not to adopt a rescue plan for Fannie Mae and Freddie Mac that would wipe out the value of their preferred shares, according to a source familiar with the matter. The Fed fears that any move that hurt the preferred could worsen the crisis in regional banks that is already under way.
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The situation is complicated, however, by the large share of preferred stock held by regional banks, many of which are viewed as possible candidates for failure in these credit crunched times. As the Financial Times reported over the weekened regional banks and US insurers hold the majority of Fannie and Freddie’soutstanding preferred stock. The Fed has begun advocating against wiping out these shares, saying the threat to stability of the banks is greater than the ‘moral hazard’ argument, a source familiar with the matter says.

As usual, it’s not clear what is meant by “wiping out”.

This entry was posted on Monday, August 25th, 2008 at 8:31 pm and is filed under Market Action. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.