Testing Hank Paulson’s Resolve on the GSEs

August 21, 2008

"When it rains, it pours" - so goes an old adage, and while the US authorities are still scrambling to figure out just what to do in the context of the erstwhile jewels, now broken, mortgage giants Fannie Mae (FNM) and Freddie Mac’s (FRE) foreign investors are beginning to vote, as it were, with their feet. As such, the big news so far this week must certainly be the extent to which portfolio managers at foreign central banks held suspiciously back in their hunger for Freddie Mac’s three year note auction. Reuters and the IHT provide the details:

On Tuesday, Freddie Mac had to pay a steep premium on a $3 billion issuance of five-year debt. The company will pay an interest rate of 1.13 percentage points higher than the rate the U.S. government pays for comparable borrowing. Earlier this year, the premium was as low as 0.6 points, according to Bloomberg.

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