Freddie Mac Sells Two Smaller Note Issues To Persistent Demand
March 26 2009 - 12:15PM
Dow Jones News
Freddie Mac (FRE) on Thursday sold $3 billion of 10-year notes
and $5 billion of two-year notes to persistent investor demand.
This time, however, both deals are smaller in size from the
massive debt offerings the government-sponsored enterprise has
issued in the past couple of months.
Market participants cautioned that the sizes are no indication
of investor appetite, and it has more to do with Freddie Mac's
preference to keep its issues to manageable size.
Freddie officials weren't available to comment on the
offering.
The mortgage company's sale on Thursday was ahead of a U.S.
Treasury Department auction of $24 billion in seven-year notes. On
Wednesday, a similar auction of five-year Treasury notes met with
weaker-than-expected demand, sparking some concern that increased
government borrowing was overwhelming demand for these kind of
securities.
But that wasn't the case with the Freddie issues.
"There's still an appetite for these kinds of deals," said Chris
Aherns, a strategist with UBS.
Market participants said 10-year issues typically tend to be
smaller in size, since the mortgage companies don't need too much
funding for such a long term.
Freddie's issue drew about $6 billion to $7 billion of orders,
but the company chose to cap the deal size at $3 billion, a source
close to the deal said.
The two-year note issue also was well subscribed, market
participants said, which prompted the company to lower its risk
premium to 71 basis points from the initial 72.5 basis points over
comparable Treasury yields.
However, this was smaller than a comparable Fannie Mae (FNM)
deal sold in February, which ballooned to $15 billion in size.
Currently, risk premiums on existing agency debt securities are
mixed with tighter levels on the short end, and weaker levels on
the long end. Fannie's two-year note traded at 65.5 basis points,
while Freddie's 4.875% note due 2018 was at 85.5 basis points,
according to TradeWeb data.
-By Prabha Natarajan, Dow Jones Newswires; 201-938-5071;
prabha.natarajan@dowjones.com