Big investors: No problem with Freddie debt sale
NEW YORK (Reuters) - Wall Street analysts and investors, including Loomis Sayles' Dan Fuss, one of the most widely followed U.S. bond managers, on Sunday said they didn't expect to see any problems with Freddie Mac's planned bill sale on Monday.
Freddie Mac is due to sell $3 billion of three- and six-month debt in what will be a barometer of market appetite for the firm's securities at a time when its share price has sunk sharply, causing concern about its capitalization.
"I don't expect any problems with the Freddie Mac offering," Dan Fuss, vice chairman of Boston-based Loomis Sayles, which oversees more than $100 billion in fixed-income securities, told Reuters by email.
Loomis Sayles has bought 'agency debt' of Fannie Mae and Freddie Mac, the two biggest sources of U.S. mortgage financing, in recent days as they provide "outstanding value," Fuss said, adding he will be looking at Monday's deal.
The Freddie Mac sale will be "done fairly easily. The debt securities are money good," added Andrew Harding, chief investment officer of fixed income at Allegiant Asset Management which oversees $20 billion in fixed-income securities, meaning they are seen as safe investments.
Friday, debt of Freddie and rival Fannie Mae soared in their biggest one-day gain in history on speculation any government takeover of the troubled housing giants would make the bonds more like ultra-safe U.S. Treasuries.
Yield spreads on the corporate "federal agency" debt of the companies tightened as much as 29 basis points for five-year issues, according to broker GovPX/Garban-ICAP.
The U.S. Treasury during the weekend was checking banks and other institutions which typically buy the type of short-term securities Freddie Mac will sell in one of its regularly scheduled sales of securities, assessing their appetite for them, according to the Washington Post.
If the sale goes badly and stock of the two companies -- now barely a fraction of year-ago levels -- resume tumbling, then Treasury and the Federal Reserve will nearly certainly be obliged to step in to help the government-sponsored but shareholder-owned mortgage financing enterprises.
The Treasury will issue a statement on Sunday expressing support for Fannie Mae and Freddie Mac, a source familiar with the matter said. Treasury declined to comment.
"The government cannot afford to let this thing spiral down too much -- they are part of the resolution of the housing crisis," Allegiant's Harding said.
"We buy this kind of paper all the time for our money markets and there is nothing to stop us from buying in the future. We are looking at tomorrow's Freddie offering," said Harding, who is based in Cleveland, Ohio.
Rajiv Setia, director of U.S. fixed-income strategy at Barclays Capital, said: "The auction on Monday I don't think will be a big issue ... But over time, if the equity continues to trade in the single digits, people across the world will begin to ask questions" about the companies' stability.
Last Monday, Freddie Mac sold $4 billion of three- and six-month bills. The $2 billion of three-month bills were priced at 99.4193 with a money market yield of 2.337 percent, while the $2 billion of six-month bills were priced at 98.7486, with a money market yield of 2.521 percent.
Alex Roever, a strategist at JPMorgan Chase, said in a client note that investors who have ramped up purchases of GSE short-term debt this year have grown "apprehensive, and are unsure of what steps to take next." He saw no reason to duck short-term agency debt, however. Continued...
