Fannie and Freddie

Freddie did a $3 billion note offering today. The big question was what was the Asian participation going to be?

http://www.ft.com/cms/s/0/1167e8cc-6e25-11dd-b5df-0000779fd18c.html

Asian investors bought 30 per cent of Tuesday’s deal, compared with 41.3 per cent of Freddie’s five-year sale in May. Asian investors purchased 22 per cent of Fannie’s offering last week compared with 42 per cent of a similar issue in May.

This lack of participation resulted in of course much higher borrowing costs.

Freddie paid 4.172 per cent, a spread of 113 basis points over Treasuries, to sell the $3bn in five-year notes. That compares with a spread of 69 bps, or a yield of 3.751 per cent, Freddie paid to sell $4bn in five-year notes in May.

If the treasury has indeed backed this paper, why would the spreads still be so high? I think it has less to do with the credit quality and more to do with foreign capital sources drying up. Maybe this is just because of the questions surrounding FNM and FRE but if there is something bigger going on here it could have profound implications.