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Strategies & Market Trends : Heinz Blasnik- Views You Can Use -- Ignore unavailable to you. Want to Upgrade?

To: LLCF who wrote (3097)	7/22/2003 4:55:15 AM
From: maceng2	Respond to of 4905

I liked the cartoon -ggg- btw here is the FT source of that yahoo msg.. news.ft.com US home loan debt issue falls By Jenny Wiggins in New York Published: July 21 2003 22:06 \| Last Updated: July 21 2003 22:06 The price of debt issued by US mortgage financiers Freddie Mac and Fannie Mae fell to its lowest level in two months on Monday amid market rumours that European central banks had been encouraged to reduce their holdings. Unconfirmed reports that the European Central Bank had recommended central banks cut their holdings of so-called agency debt sparked selling. Agency debt spreads widened around 4 basis points last week, and a further 2 basis points on Monday, traders said. The selling pushed the spread on 10-year agency debt relative to Treasuries out to 43 points - the highest level since May. The ECB declined to comment. The falling price of debt, which would increase the companies' future funding costs, will be watched closely by regulators. Higher funding costs could increase the companies' financial risk and restrict their ability to buy more mortgages. Fannie and Freddie hold a fifth of all US residential mortgages and their cheap borrowing costs, thanks to an implicit government guarantee, have helped underpin the bouyant US housing market. The sharp fall in debt prices over the past week contrasts with the relatively calm reaction by debt investors after the Freddie Mac accounting scandal was revealed in June. The value of Freddie Mac's stock dropped more sharply than the value of its debt after the company ousted three top executives, including its chief executive officer. The company subsequently revealed that it understated earnings by up to $4.5bn between 2000 and 2002. But debt investors are becoming increasingly nervous about the outcome of the regulatory investigations and are looking for reassurance that there are no further accounting problems at Freddie Mac. "The market is eagerly awaiting the final audited report from Freddie's new auditors on the earnings restatement going back to 2000," said Arthur Frank, head of mortgage research at Nomura Securities. Central banks globally have more than doubled their holdings of agency securities over the past three years. In mid-July $184bn of agency securities were held in custody accounts for central banks at the US Federal Reserve, up from $88bn three years ago. These figures are "a very good proxy" for central banks' overall holdings of agency securities, said Nancy Vanden Houten, analyst at Stone & McCarthy Research Associates. "Central banks are big buyers of agency securities," she said. Agency securities hold the top credit rating of "AAA" but pay more interest than government bonds, making them an attractive investment for banks. There were some $2,400bn of agency securities outstanding at the end of the first quarter, according to the Bond Market Association. Freddie Mac's chief financial officer, Martin Baumann, will testify on Tuesday before the House of Representatives' energy and commerce panel on the company's derivatives accounting.