Mortgage-lender Freddie Mac (FRE) successfully auctioned off $3 billion in debt yesterday. The government’s bailout has likely headed off a near-term liquidity crisis for Freddie and Fannie, but this still won’t help shareholders avoid getting clobbered. WSJ:
A closely watched auction of $3 billion in Freddie’s short-term debt drew more bids than usual. The company was able to sell its three- and six-month notes at lower-than-expected yields, which in turn helped keep its borrowing costs low. Some market participants said much of the demand for the auction appeared to come from banks and brokers, rather than conservative money-market funds that are traditionally large buyers of short-term debt.
The successful auction came on the heels the Treasury’s bailout plan, which promises to authorise the government purchase of GSE shares, as well as an expansion of credit lines. While the auction indicates that FRE will remain adequately capitalised in the short-term, equity investors remain concerned that both Freddie Mac and Fannie Mae will need a dilutive government-rescue package to remain affloat.
Bond markets are happy, however, and the price of credit default swaps has narrowed by almost 50% since peaking last Thursday.