Crescenzi Unravels Fannie/Freddie Debt - TheStreet

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Watch Freddie's Bill Sales

Posted at 9:02 a.m. EDT

Today, as is the case every week,

Freddie Mac


will auction three- and six-month bills. Recent events obviously raise the importance of today's auction, as the results will be scrutinized as a gauge of investor appetite for debt securities issued by

Fannie Mae


and Freddie Mac. Freddie will sell $2 billion three-month bills and $1 billion six-month bills.

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There are three key metrics to watch for today's auction: the bid/cover ratio, the yield spread between the auction yield and Treasury bills, and the yield spread between the auction yield and LIBOR.

Over the past three months, the average bid/cover ratio for three-month bills was 2.83; for six-month bills, it was 2.50. Over the same months, the yield spread between three-month bill auctions and three-month T-bills was 42 basis points (Freddie's bill yielded 42 basis points more than T-bills), and for six-month bills, the spread was 51 basis points. In the case vs. LIBOR, Freddie's auctioned three-month bills yielded 63 basis points under LIBOR, and six-month bills yielded 55 basis points under.

The behavior of Fannie and Freddie's debt in the secondary market suggests that if anything, investors have become less anxious about holding GSE debt, as indicated by the compression of yield spreads since last week of yields between GSE debt and Treasuries.

Fannie, Freddie Debt Trading Well

Posted at 9:35 a.m. EDT

The yield spread between debt issued by






and U.S. Treasuries has narrowed again today, indicating reduced anxiety about their ability to repay their debts. On Friday the spread between Fannie's 10-year and 10-year Treasuries was 68.5 basis points, which was down a massive 19 basis points from Thursday. The spread has narrowed another 3 basis points this morning. Freddie's 10-year is trading at 71.9 basis points over Treasuries, a decline of 3.3 basis points from Friday and a whopping 22.1 basis points from Thursday.

The unfortunate offset to this is the increase in anxiety about the finances of the U.S., as seen in last week's increase in the price of insurance paid against the possibility of default of the U.S. government (it rose a few basis points). The trade-weighted value of the dollar fell only 1% last week, so these fears are obviously not very deep at the moment.

Tony Crescenzi is the chief bond market strategist at Miller Tabak + Co., LLC, and advises many of the nation's top institutional investors on issues related to the bond market, the economy and other macro-related issues. At the request of the Federal Reserve, Crescenzi is a regular participant in the board's Livingston Survey of economic forecasters. He is also the author of the revised investment classic,

The Money Market

, first published in 1978 by Marcia Stigum, and

The Strategic Bond Investor

. At the time of publication, Crescenzi or Miller Tabak had no positions in the securities mentioned in this column, although holdings can change at any time. Under no circumstances does the information in this column represent a recommendation to buy or sell stocks. Crescenzi also is the founder of, a popular Web site covering the bond market and the economy. Crescenzi appreciates your feedback;

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