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Fannie Mortgage Bond Yields Little Changed on Bailout Changes

Relative yields on Fannie Mae and Freddie Mac mortgage securities that guide home-loan rates were little changed as the Treasury Department said it would alter their bailout agreements, while spreads on the companies’ corporate debt narrowed.

A Bloomberg index of yields on Fannie Mae-guaranteed mortgage bonds trading closest to face value was unchanged at 1.31 percentage points higher than an average of five- and 10-year Treasury rates as of 9:54 a.m. in New York, the widest in a month. Spreads on its unsecured notes due in August 2017 fell 0.05 percentage point to 0.13 percentage point, the lowest since the debt was issued on July 18, Bloomberg data show.

Adjustments to the companies’ government support will replace a requirement that they pay 10 percent dividends annually on the capital they’ve drawn from the Treasury. The firms’ earnings eventually may not have been able to cover that amount. Their available aid to cover losses and the payouts would no longer have been unlimited after this year. The Treasury will also direct the firms to wind down their holdings of mortgage backed-securities and loans faster.

“All else equal, this change indicates the net supply of agency MBS from the GSEs to the rest of the market to increase by $50 to $70 billion in 2013 from what it would have been otherwise,” Nomura Securities International analysts led by Ohmsatya Ravi wrote today in a note to clients. The companies are referred to as government-sponsored enterprises, or GSEs.

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