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Federal Home Loan Banks sell $3 bln three year debt

Tue Aug 26, 2008 2:12pm EDT

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NEW YORK, Aug 26 (Reuters) - The Federal Home Loan Bank system, which raises money for U.S. banks' residential loan originations, on Tuesday said it sold $3 billion in three-year bonds with most demand from international investors.

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The bond was priced to yield 3.683 percent, or 1.33 percentage points over the two-year U.S. Treasury note.

Most of the international demand was not characterized by the FHLB's office of finance, but it said 14 percent came from Asia and 6 percent from Europe. Central banks were the largest single group of investors, taking a fifth of the issue.

The FHLBs sell debt in the market for "federal agency" debt, which includes debt from Fannie Mae (FNM.N) and Freddie Mac (FRE.N). Increased volatility and higher yield spread premiums in the market amid turmoil surrounding the two shareholder-owned companies has been increasing funding costs for the FHLBs, the FHLB of New York said in a filing earlier this month.

Barclays Capital, JPMorgan Chase & Co. and Merrill Lynch & Co. managed the issue.

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