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United States News Title: Economic Blood Dancers Wrong About FM/FN - Fannie, Freddie Spreads Narrowest in 17 Years Feb. 12 (Bloomberg) -- Traders are driving relative yields on Fannie Mae and Freddie Mac mortgage bonds that most influence the interest rates consumers pay to the lowest in 17 years, speculating cash the companies use to buy delinquent loans will be recycled back into the securities. The difference between yields on Fannie Mae’s current- coupon 30-year securities, which trade closest to face value, and 10-year Treasuries narrowed to as little as 0.66 percentage point yesterday, matching the lowest since 1992, according to data compiled by Bloomberg. Investors turned to the securities after the government- supported companies said they would buy about $200 billion of loans out of their mortgage bonds, mostly from higher-coupon debt, whose holders are now suffering losses following the announcement. The shift will leave investors with cash to reinvest as the Federal Reserve’s purchases of $1.25 trillion of home-loan debt ends next month. “It’ll be a cushion for the end of the Fed program,” said David Cannon, global co-head of asset- and mortgage-backed securities at RBS Securities Inc. in Stamford, Connecticut, a unit of Royal Bank of Scotland Group Plc. “It probably makes sense for most of it to come right back into mortgages again,” he said, referring to the cash used to buy the delinquent loans. Elsewhere in credit markets, the extra yield investors demand to own company bonds instead of government debt was unchanged at 170 basis points yesterday, while overall yields rose to 4.16 percent from 4.14 percent a day earlier, according to Bank of America Merrill Lynch’s Global Broad Market Corporate Index. Bond Sales Tumble Sales of corporate bonds tumbled to $23.5 billion this week, 61 percent below the average over the previous year, according to data compiled by Bloomberg. Man Group Plc, the largest publicly traded hedge-fund company, sold 600 million euros ($821 million) of five-year bonds in its first issue in the common European currency. Life Technologies Corp., a provider of gene-analysis tools for medical research, sold $1.5 billion of debt to repay loans. Songa Offshore SE, the Norwegian owner of drilling rigs, and capacitor-maker Kemet Corp. postponed high-yield debt offerings in the U.S. yesterday, joining at least seven other companies that have pulled or delayed deals worldwide since Jan. 21, according to data compiled by Bloomberg. Benchmark gauges of credit risk in Europe rose today after European leaders stopped short of offering concrete steps in their announcement that they’d reached an agreement to contain Greece’s budget crisis. European leaders promised to take “determined and coordinated action” on Greece if needed while ordering the country to get the euro-region’s biggest budget deficit under control. ‘Lot of Questions’ “There are a lot of questions that are going to need to be answered,” Marvin Barth, chief investment strategist at Santa Monica, California-based Tennenbaum Capital Partners LLC, said in an interview with Bloomberg Television. “In particular, what tests is Greece going to have to get whatever aid might be available.” The credit-risk indexes extended their increase after China ordered banks to set aside more deposits as reserves for the second time in a month to cool the fastest-growing major economy.
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They also announce this week that they would buy back at face value any nonperforming loan that has been packaged into any of their bonds and replace it with a performing mortgage.
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