Narrower Spreads Could Translate Into Lower Mortgage Ratesby Tim Manni
In its first issue of new notes since the government took the company into conservatorship over the weekend, Fannie issued $7 billion of two-year benchmark notes at a spread of 70 basis points, or 0.07%, over the comparable Treasury security.
That’s down sharply from the spread Fannie was paying only last week, reflecting reduced fears about the company’s capital position and increased demand for the mortgage-backed securities Fannie and its sibling Freddie Mac (FRE) deal in. On Aug. 13, for instance, as shares in Fannie tumbled amid worries about the company’s capital position, Fannie priced an offering of three-year benchmark notes at a spread of 122 basis points (or 0.122%) above Treasurys.
The reduced spread is good news for the housing market, because narrower spreads translate into lower mortgage rates, which make houses more affordable.