Big investors: No problem with Freddie debt sale

NEW YORK (Reuters) - U.S. authorities assured success for Freddie Mac's closely-watched debt offering after the U.S. Treasury and Federal Reserve announced sweeping plans to support the ailing company and its rival mortgage finance company Fannie Mae, Wall Street investors said on Sunday.

Freddie Mac is due to sell $3 billion of three- and six-month bills in a barometer of market appetite for its securities. The company's shares have fallen 60 percent this year, causing concern about its capitalization.

The Treasury and Fed plan, announced Sunday evening, calls for sweeping measures to lend money and buy equity if necessary in Freddie Mac and Fannie Mae, which are both shareholder-owned but government-sponsored enterprises.

"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 in a phone interview on Sunday after the Treasury and Fed announcement.

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.

"There will be no problem with the debt issue. The government has offered to provide a credit line in what seems to be an unlimited amount," added Jeffrey Gundlach, chief investment officer of TCW Group in Los Angeles, which invests $160 billion.

In unprecedented moves to bolster market confidence, the Fed on Sunday said Fannie and Freddie could access its discount window for emergency cash.

The Treasury separately said on Sunday it would temporarily increase its line of credit to the two, as well as purchase equity in them, if needed. Both the line of credit and the liquidity backstop would be temporary, but could be in place for up to 18 months. Treasury would not say how high the line of credit might go or how much of a stake it might purchase.

Friday, debt of the two companies soared in their biggest one-day gain ever on speculation any government takeover 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.

"My guess is that everything issued by Fannie and Freddie goes up (on Monday), except for the short-term paper as they have been affected in a meaningful way," Fuss said.

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.

"This definitely helps our position as we own lots of Fannie and Freddie paper," said Andrew Harding, chief investment officer of fixed income at Allegiant Management which oversees $20 billion in fixed-income securities, about the Treasury and Fed measures.

"The government could not afford to let this thing spiral down too much -- they are part of the resolution of the housing crisis," said Allegiant's Harding. "We are looking at tomorrow's Freddie offering."

Bill announcements on Freddie Mac are generally published at around 9:45 a.m. EDT.

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 on Friday 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.

Roever said if market perceptions of the GSEs' balance sheets continue to weaken, he sees some form of government intervention.

"The government will not let Fannie and Freddie go under and that was made clear Sunday," said Harding, who is based in Cleveland, Ohio. "I am sure glad we are not shorting GSE paper."

(Additional reporting by Al Yoon and Kristina Cooke; Editing by James Dalgleish)