Fannie Raises $7 Billion in Largest Single Debt Sale (Update1)
By Jody Shenn
Sept. 10 (Bloomberg) -- Fannie Mae raised $7 billion in its largest individual sale of senior debt, after a government takeover of the company led to a record drop in yields relative to benchmarks.
The two-year benchmark notes, which mature Oct. 12, 2010, were priced to yield 2.896 percent, or 70 basis points more than U.S. Treasuries of similar maturity, the Washington-based company said in a statement sent by e-mail. That was the lowest spread in a two-year sale by Fannie since June. Earlier today, the company sold $2 billion of short-term bills at lower yield spreads in a weekly auction. A basis point is 0.01 percentage point
The U.S. Treasury and the Federal Housing Finance Agency put Fannie and Freddie Mac into conservatorship on Sept. 7 and agreed to inject equity as needed under authority that runs through next year, citing concern that the mortgage-finance companies may not have enough capital. A day later, the extra yield investors demand to own the companies' debt over Treasuries plunged the most on record, though remained higher than earlier this year.
The large size of the two-year debt sale was ``a great way to test ultimate demand for a moderately cheap security,'' Jim Vogel, the head of agency debt research at FTN Financial Group in Memphis, Tennessee, said in a telephone interview.
Spreads over Treasuries on Fannie's outstanding two-year debt fell to 54 basis points on Sept. 8, the lowest since May 27, from 89 basis points, the steepest drop in history. The spread was 56 basis points at 1 p.m. in New York, compared with a five- year average of 30 basis points.
Government Takeover
Barclays Plc, Citigroup Inc. and JPMorgan Chase & Co. were hired to manage the sale of two-year debt, with co-managers including Deutsche Bank AG, Goldman Sachs Group Inc. and UBS AG, Fannie said yesterday. The company's benchmark notes are its largest type of debt issue, with a minimum size of $3 billion.
Treasury Secretary Henry Paulson and FHFA Director James Lockhart exercised their recently acquired authority to take control of Fannie and McLean, Virginia-based Freddie after government-led reviews of the companies' finances found that some of their capital reserves were too low or of low quality.
Paulson said he stepped in to prevent a collapse of the companies, protecting investors owning more than $5 trillion of Fannie and Freddie corporate debt and mortgage-backed securities while potentially sacrificing holders of the common and preferred stocks. The companies own or guarantee almost half of the $12 trillion in U.S. residential mortgage debt outstanding.
``I would not own anything to do with Fannie and Freddie because the government could change its mind,'' Jim Rogers, the head of Roger Holdings in Singapore, said during a Bloomberg Television interview today. ``I don't think they will, but I would not own them.''
Interest-Rate Swaps
The spread on Fannie's outstanding two-year notes below interest-rate swaps, another benchmark important to Fannie's finances because the company uses the derivatives as hedges, was about 36 basis points, the lowest since 2004.
The latest sale is Fannie's largest of a single type of senior debt. The company raised $8 billion in a single day on June 4, selling $4 billion each of two-year and five-year notes.
The company last sold two-year notes in July at a spread of 74 basis points. Fannie today also sold $1 billion of three-month notes at a yield of 2.18 percent. That's about 54 basis points more than Treasuries and 64 basis points less than the three- month London interbank offered rate, compared with 85 basis points and 26 basis points in a sale last week, according to data compiled by Bloomberg.
Asian investors bought 12 percent of the latest issue, while European investors purchased 8 percent, down from 39 percent and 17 percent in the July sale, according to company data. Central banks bought 27 percent, down from 57 percent.
The company also said it sold $1 billion of six-month debt at a yield of 2.408 percent, about 55 basis points above Treasury bills and 68 basis points below Libor, compared with 94 basis points and 25 basis points last week.
A swap rate is the fixed yield paid in return for floating payments linked to average short-term bank borrowing costs.
To contact the reporter on this story: Jody Shenn in New York at [email protected]
Last Updated: September 10, 2008 13:39 EDT
By Jody Shenn
Sept. 10 (Bloomberg) -- Fannie Mae raised $7 billion in its largest individual sale of senior debt, after a government takeover of the company led to a record drop in yields relative to benchmarks.
The two-year benchmark notes, which mature Oct. 12, 2010, were priced to yield 2.896 percent, or 70 basis points more than U.S. Treasuries of similar maturity, the Washington-based company said in a statement sent by e-mail. That was the lowest spread in a two-year sale by Fannie since June. Earlier today, the company sold $2 billion of short-term bills at lower yield spreads in a weekly auction. A basis point is 0.01 percentage point
The U.S. Treasury and the Federal Housing Finance Agency put Fannie and Freddie Mac into conservatorship on Sept. 7 and agreed to inject equity as needed under authority that runs through next year, citing concern that the mortgage-finance companies may not have enough capital. A day later, the extra yield investors demand to own the companies' debt over Treasuries plunged the most on record, though remained higher than earlier this year.
The large size of the two-year debt sale was ``a great way to test ultimate demand for a moderately cheap security,'' Jim Vogel, the head of agency debt research at FTN Financial Group in Memphis, Tennessee, said in a telephone interview.
Spreads over Treasuries on Fannie's outstanding two-year debt fell to 54 basis points on Sept. 8, the lowest since May 27, from 89 basis points, the steepest drop in history. The spread was 56 basis points at 1 p.m. in New York, compared with a five- year average of 30 basis points.
Government Takeover
Barclays Plc, Citigroup Inc. and JPMorgan Chase & Co. were hired to manage the sale of two-year debt, with co-managers including Deutsche Bank AG, Goldman Sachs Group Inc. and UBS AG, Fannie said yesterday. The company's benchmark notes are its largest type of debt issue, with a minimum size of $3 billion.
Treasury Secretary Henry Paulson and FHFA Director James Lockhart exercised their recently acquired authority to take control of Fannie and McLean, Virginia-based Freddie after government-led reviews of the companies' finances found that some of their capital reserves were too low or of low quality.
Paulson said he stepped in to prevent a collapse of the companies, protecting investors owning more than $5 trillion of Fannie and Freddie corporate debt and mortgage-backed securities while potentially sacrificing holders of the common and preferred stocks. The companies own or guarantee almost half of the $12 trillion in U.S. residential mortgage debt outstanding.
``I would not own anything to do with Fannie and Freddie because the government could change its mind,'' Jim Rogers, the head of Roger Holdings in Singapore, said during a Bloomberg Television interview today. ``I don't think they will, but I would not own them.''
Interest-Rate Swaps
The spread on Fannie's outstanding two-year notes below interest-rate swaps, another benchmark important to Fannie's finances because the company uses the derivatives as hedges, was about 36 basis points, the lowest since 2004.
The latest sale is Fannie's largest of a single type of senior debt. The company raised $8 billion in a single day on June 4, selling $4 billion each of two-year and five-year notes.
The company last sold two-year notes in July at a spread of 74 basis points. Fannie today also sold $1 billion of three-month notes at a yield of 2.18 percent. That's about 54 basis points more than Treasuries and 64 basis points less than the three- month London interbank offered rate, compared with 85 basis points and 26 basis points in a sale last week, according to data compiled by Bloomberg.
Asian investors bought 12 percent of the latest issue, while European investors purchased 8 percent, down from 39 percent and 17 percent in the July sale, according to company data. Central banks bought 27 percent, down from 57 percent.
The company also said it sold $1 billion of six-month debt at a yield of 2.408 percent, about 55 basis points above Treasury bills and 68 basis points below Libor, compared with 94 basis points and 25 basis points last week.
A swap rate is the fixed yield paid in return for floating payments linked to average short-term bank borrowing costs.
To contact the reporter on this story: Jody Shenn in New York at [email protected]
Last Updated: September 10, 2008 13:39 EDT
