Fannie Plans First Benchmark 10-Year Agency Bond Since 2012

Fannie Mae (FNMA) is planning to sell 10-year benchmark debt in the first offering of its type from a government-sponsored enterprise in more than two years, according to FTN Financial.

The bonds, which are expected to price tomorrow, may yield about 0.33 percentage point more than Treasuries, compared with a spread of about 0.5 percentage point on Freddie Mac’s 2012 deal of the same maturity, FTN analyst Jim Vogel wrote today in a note to clients. Yield premiums on the new securities will probably tighten in the weeks after the sale, as happened after the Freddie Mac offering, he said.

The two taxpayer-backed mortgage giants have been selling less debt as they shrink their investments in response to mandates created after they were seized by the U.S. in 2008, reducing the supply of securities known as agency bonds that are considered almost as safe as Treasuries. Washington-based Fannie Mae last month sold $3 billion of its three-year benchmark debt. It last sold similar 10-year debt in 2007.

“Although our balance sheet continues to decline, the composition of our mortgage portfolio has changed and this 10-year security aligns with our liability and risk-management needs,” Katherine Constantinou, a spokeswoman for the company, said in an e-mailed statement.

Fannie Mae’s outstanding debt fell to $495.9 billion in July from $534.2 billion at the start of this year, according to monthly disclosures. The decline was bigger among notes with original maturities of more than one year, which dropped to $391.8 billion from $461.9 billion.

The Federal Home Loan Bank system, another issuer in the agency market that uses the funds it raises to lend to banks and insurers, has reversed a trend of shrinking its outstanding bonds. The government-chartered cooperatives’ total debt rose to $814.8 billion in July from $766.8 billion, driven by a jump in its shortest-term discount notes to $337.8 billion from $293.3 billion, data on its website show.

To contact the reporter on this story: Jody Shenn in New York at jshenn@bloomberg.net

To contact the editors responsible for this story: Shannon D. Harrington at sharrington6@bloomberg.net Mitchell Martin

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