WORLD> America
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WORLD> America
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Fannie and Freddie shares dive, debt rallies
(Agencies)
Updated: 2008-09-08 23:28 The yield premium on agencies' debt against Treasury bonds narrowed by at least 20 basis points, traders said. Bond prices move in inverse relation to yields. The bailout will trigger one of the largest ever payments in the credit default swap market, analysts said on Monday. It is the first time a company in the benchmark investment-grade credit derivative index has had a credit event, JPMorgan analyst Eric Beinstein said in a report on Monday. Freddie and Fannie, which serve a government mission to support housing, were put in a conservatorship that allows their stock to keep trading but puts common shareholders last in line in any claims. The government bond market, meanwhile, suffered as investors reasoned the bailout would vastly increase the amount of debt needed to fund the government's obligations over the medium term. Yields on two-year Treasury notes jumped nearly a half percentage point on the news. Under the government takeover plan announced Sunday, the Treasury took $1 billion in preferred senior stock in each company, but its equity stake could reach as much as $100 billion in each. Paulson had hatched a plan in early July to shore up the struggling firms with a promise of fresh loans and a government injection of capital if either company was pushed to the brink of collapse. But talks on an aid package ended abruptly in the past few days and policy-makers decided to seize the firms, industry sources with knowledge of the events said. |
