Freddie and Fannie

  • When it comes to Freddie Mac and Fannie Mae, market participants remain Nervous Nellies. Shares of the government-sponsored enterprises ended the day down a sickening 24% and 13%, respectively, as investors fretted over a worsening of the credit crisis (and things can always get worse). Tuesday, soothing words from Treasury Secretary Henry Paulson and James Lockhart, head of the Office of Federal Housing Enterprise Oversight, calmed investors’ nerves a little, after the suggestion was made that changes to accounting rules might force Freddie and Fannie to raise $75 billion in fresh capital. But Fannie Mae today paid 3.27% for its most recent issue of two-year notes Wednesday, or 0.74 percentage point over comparable Treasurys, the biggest difference ever. It’s credit default swaps are trading at high levels (about $200,000, compared with $175,000 early in the trading session, according to Phoenix Partners), and implied volatility is well above-average in the options market. It suggests traders remain poised for big moves in their share prices and are “buying protection on the downside,” said Paul Foster, options strategist at Flyonthewall.com. Numbers on Freddie Mac may be gloomier because it already looks hard-pressed to raise capital it needs, said Fred Dickson, chief market strategist at D.A. Davidson. In June, Freddie reiterated plans to raise $5.5 billion in new capital this quarter. –Annelena Lobb