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By Joy Wiltermuth
NEW YORK, Aug 8 (IFR) - Freddie Mac is looking to European investors to help anchor its year-old risk-sharing RMBS bond program, which like a similar program from Fannie Mae, has recently been rattled by volatility.
Margin calls in recent days on several hedge fund investors, the dominant buyers of longer, non-rated tranches of these bonds, have highlighted areas of fragility in the new asset class.
Bankers told IFR in the past week that both Freddie and Fannie have been looking to find more stable hands for a bigger share of their bonds as these programs mature.
Freddie Mac’s Mike Reynolds, a director overseeing the agency’s Structured Agency Credit Risk (STACR) risk-sharing program, said in an interview with IFR that work has already begun to widen the investor base by bringing in buyers across the Atlantic.
“Keep in mind, it’s a brand new market,” Reynolds said. “At one year old, it’s very natural for a market to find the right level after spreads tightened on each deal until a few weeks ago.”
Prices on unrated risk-share notes gapped out from tights of one-month Libor plus 240bp to 400bp and higher, a head trader at a bank said.
Spreads as of Friday morning had settled back to roughly 375bp, he said, but noted the choppy markets may have taken the “new car smell” off the product.
“There was so much interest early on in the program - investors had been working with Freddie and Fannie for a year by the time the programs came to market,” the trader said.
Last month, Freddie met with 25 different EU clients on its latest STACR issue to introduce some to the platform for the first time.
The trade, which priced mid-week at levels much wider than Fannie Mae’s bond in July, was the first from the STACR series to include language that Freddie had retained an 5% economic stake in the transaction, Reynolds said.
A key to rustling up EU buyers has been getting US deals to adhere to new EU risk retention standards, which took hold in January and penalise heavily buyers in the region that hold non-compliant bonds.
“Each investor needs to assess on its own in Europe,” Reynolds said.
The push to Europe comes as issuers with new bonds tied to US homes ended up paying more to offload their latest round of deals.
The Blackstone Group, with its third single family rental bond (SFR), was also the first in its sector to go down the EU compliance route by retaining 5% of the deal’s bottom securities.
It priced on Monday 10-75bp wider than its prior trade in May..
“As a general thing, money managers in Europe are looking for steady supply, perhaps even more so today at spreads that are attractive to them,” Reynolds said.
Calls and an email to Fannie Mae for comment were not returned. (Reporting by Joy Wiltermuth; editing by Shankar Ramakrishnan and Anil Mayre)