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Fannie Mae Plans First Benchmark 10-Year Agency Bond Since 2012

SEP 3, 2014 2:39pm ET
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Fannie Mae 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.

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 declined 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.

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