Freddie Mac is seeking to reassure holders of its debt that the preferred stock purchase agreement announced by US Treasury secretary Henry Paulson will protect them, "regardless of who wins the elections".
Speaking to a packed auditorium at Euromoney’s Japan Capital Markets Congress on September 24, Timothy Bitsberger, treasurer at Freddie Mac, said that the agreement between the US Treasury and the two government-sponsored enterprises Freddie Mac and Fannie Mae, worth up to $100 billion each, is a "legally binding agreement to protect the owners of debt and mortgages issued prior to and after December 2009". Foregoing the detailed slides and charts that he had used at the previous year’s conference to describe his views on the US housing market, Bitsberger spoke for just 10 minutes of his allotted 50 before inviting questions.
"Conservatorship will ensure business as usual," he said, referring to the appointment of the Federal Housing Finance Agency as steward of Freddie Mac and Fannie Mae. Bitsberger sought to reassure debt investors that Freddie Mac would continue its programme of regular issuance, with the next announcement due in October. When asked in a private interview after his speech about what effect his company’s recent difficulties might have on the cost of that debt funding, Bitsberger told Euromoney: "What’s important to us is the spread between our debt and the mortgages we buy. When our debt was priced tight, so were mortgages; now that our debt is trading cheap when compared historically with treasuries, mortgages are also cheap."
Pressed further about investor concerns over GSE debt, Bitsberger mentioned the then-continuing hearings in the US Senate about a proposed $700 billion bailout and said that "the market wants clarity, and until that comes you will get volatility in credit and funding curves".
In the Q&A session after his speech Bitsberger frequently responded that it would be "inappropriate for [him] to speculate", most notably when asked to comment on whether the proposed bailout might sour investor sentiment towards the GSEs and the US in general. He did remind the audience, however, that the Treasury "is not just pumping money into the system but growing its balance sheet, and getting assets in return".
Freddie Mac’s short-term debt has performed much better than its 10-year bonds of late. Its two-year yields 3.061%, the five 3.916% while the 10 is 4.607%. This prompted one questioner to ask Bitsberger "how investors should view the exit scenario from conservatorship". Bitsberger replied that "you have to look at all credit markets at the moment, but until we have more clarity on the bailout plans we’ll see a steep curve".