Fannie Mae (FNMA) is expected to lower yields on its debut securities that transfer risk of mortgage defaults to private investors after the $675 million deal garnered multiple times the required investor orders, according to investors considering the deal.
Fannie Mae and Freddie Mac (FMCC) have been courting private investors that have been reluctant to bet on new mortgage-credit risks since suffering steep losses in the financial crisis. The government-controlled firms are meeting demands of the Federal Housing Finance Agency, which wants to reduce risks to taxpayers who have paid $188 billion in bailouts to cover losses on standard Fannie and Freddie mortgage-backed securities.
The new "risk-sharing" issue from Fannie Mae is made up of synthetic notes whose value depends on the performance of $28 billion of mortgages acquired by the firm last year. The longer-term and riskier half of the two-part deal was initially oversubscribed by 17 times at a yield equivalent to 6.25 percentage points over the one-month London interbank offered rate, the investors said.
Fannie Mae will likely lower the yield spread premium before the deal's pricing, which isn't expected on Friday, investors said.
But the early demand on the deal, which was announced Thursday, may suggest that investors are quickly warming to accepting mortgage-credit risks for extra yield. Similar risk-sharing securities pioneered by Freddie Mac in July have rallied to about 5.85 percentage points over the Libor benchmark this week, from 7.15 points at the pricing.
Gains for Freddie Mac's issue show that "the market is hungry for credit-sensitive bonds," said Jeana Curro, a strategist at RBS Securities, at an asset-backed securities conference earlier this week.
A Fannie Mae spokesman declined to comment.
Write to Al Yoon at firstname.lastname@example.org
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(END) Dow Jones Newswires
October 11, 2013 10:55 ET (14:55 GMT)Copyright (c) 2013 Dow Jones & Company, Inc.
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