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Capital Markets

Agencies: Freddie ends an era

Freddie Mac withdraws liquidity from the euro market.

Freddie Mac bought back €4.7 billion of its Euro reference notes in a tender operation in October. The move comes after several years of inactivity by the US agency in euros and appears to signal an end to its programme in single currency.

“We haven’t issued since 2004 and the main reasons for that are that our funding needs have been relatively modest compared with past years and the relative funding differential between euros and dollars has been too wide,” says John Radwanski, vice-president, debt funding, and assistant treasurer at Freddie Mac.

It also highlights the fact that Freddie’s financing requirements have fallen dramatically since the heady days of summer 2000 when it launched its first euro reference transaction and that the whole idea never made much financial sense.

“It was one of the most expensive mistakes they ever made, apart from the accountancy scandal,” says a frequent borrower coverage officer who points to the fact that Freddie’s euro curve always traded much cheaper than its dollar one. Freddie paid around 15 basis points over its dollar curve for the inaugural euro reference 10-year note but there was a moment when the gap to dollars began to look acceptable – it paid only 5bp extra for a short while.

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