Takeover a Positive for GSE Bonds?

The government takeover of Fannie Mae and Freddie Mac appeared to be a positive for their bonds even though it had decimated their stock as of Monday morning. Multiple Wall Street firms had reported tighter spreads in agency mortgage-backed securities and debt at deadline time as Fannie and Freddie share prices each plummeted into a range around $1 per share. The Treasury's new authority to purchase MBS has reassured some investors who see it as likely to prevent the kind of extreme spread widening and volatility that upset the sector so notably in March, said Art Frank, a researcher at Deutsche Bank Securities. Senior and subordinated debt, meanwhile, have benefited from the limited net issuance and stronger government support resulting from the intervention, according to a Credit Suisse report.