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Strategies & Market Trends : The Residential Real Estate Crash Index -- Ignore unavailable to you. Want to Upgrade?

To: nextrade! who wrote (11188)	6/13/2003 4:59:02 PM
From: nextrade!	Read Replies (1) \| Respond to of 306849

US agencies take it on chin Reuters, 06.13.03, 4:01 PM ET forbes.com By Lynn Adler NEW YORK, June 13 (Reuters) - Freddie Mac's management overhaul and a federal investigation of the company's accounting practices sideswiped U.S. agency debt this week, sending yield spreads as much as 15 basis points wider than Treasuries. The sweeping spread widening was one of the market's largest moves since spring of 2000, when a key Treasury official suggested repealing symbolic credit lines the Treasury provides to Freddie Mac and Fannie Mae. Freddie Mac's record $9.8 billion debt buyback on Thursday and Friday helped stabilize the agency arena, strategists and investors said. But the sector, which still trades near the tightest spread levels in years, is vulnerable to further weakening as Freddie Mac's troubles linger in the headlines. Debt holders took the opportunity this week to lighten agency positions, and shift into safe Treasuries, as they monitor regulatory and legal developments for Freddie Mac. John Cassady, who helps manage $3 billion in bonds at Fifth-Third Investment Advisors in Grand Rapids, Michigan, said another spread widening of 15 to 20 basis points would give him incentive to add agencies. "You have to look at the bigger ramifications," he said. "You have to look at the credibility issue, and whether the government would back away from its implied guarantee" of the home funding agencies, which are federally chartered. Most strategists see Freddie Mac's shake-up and various probes into its accounting as an earnings matter, not a credit-worthiness story. "That's why the reaction has been most acute in the equity market," said Michael Ryan, chief fixed income strategist at UBS in New York. "The further you get away from the earnings stream, with regard to the sensitivity of the investment vehicle, the less the impact." Freddie Mac's stock jumped 7 percent on Friday, a day after touching to its lowest reading since September 2000. But, at $50.69 late Friday, the stock was still down from $59.87 a week earlier. In one contrasting agency market example, Freddie Mac five-year notes that yielded around 8 basis points last Friday sprinted out to a spread of almost 24 basis points. But last March, when the notes were first issued, the spread was 27 basis points. "We think there's going to continue to be uncertainty surrounding this market as long as we don't know details of the criminal investigation, and during this period where we have to wait for the restatement of earnings sometime in the third quarter," said Ryan. Late Friday, U.S. Rep. Richard Baker said he was preparing legislation that could double funding for the Office of Federal Housing Enterprise Oversight, which regulates Fannie Mae and Freddie Mac. He aims to hold Congressional hearings on oversight on June 25.