Russia to invest in Fannie Mae, Freddie Mac bonds

Posted Feb. 21st. 2008 4:44PM by Joseph Lazzaro

Filed under: International markets, Good news, Russia, Federal Natl Mtge (FNM)

In a development likely to be warmly-received by international finance and stock markets, Russia announced Thursday it will buy Fannie Mae and Freddie Mac bonds through its sovereign wealth funds, Russia's Finance Ministry said and Bloomberg News reported.

Russia will invest money from its Reserve Fund and National Wellbeing Fund into 15 government bond funds in Europe and the United States, including those in Fannie Mae (NYSE: FNM) and Freddie Mac (NYSE: FRE). Russia will also purchase government bonds in the U.K., Germany, France, Austria, Canada, and the Netherlands, Bloomberg News reported.

Both Fannie, down 56 cents $29.27, and Freddie, down 80 cents to $27.94, moved lower Thursday afternoon; however it should be noted that the declines occurred during a broad market sell-off, with the Dow down 159 points to 12,267.

U.S.: subprime defaults weigh

Over the past year, sovereign wealth funds have provided a needed infusion of capital to investment-strapped U.S. corporations, many of which are in the midst of trying to rebuild balance sheets following losses sustained during the surge in subprime mortgage and related asset defaults. To-date, sovereign funds have invested about $60 billion in the U.S., according to data compiled by the U.S. Federal Reserve.

Further, part of that foreign sovereign fund wealth stems from increased oil revenue, with oil-producing Russia being a classic example. A cash-strapped country a decade ago when it had to default on its government bonds in 1998, record-high oil prices and privatization have helped propel an economic boom in Russia, including soaring hard, foreign currency reserves. Russia has amassed more than $700 billion in foreign currency reserves as amid an economic expansion that's featured a growing middle class, a thriving domestic commercial sector, and broadening trade ties with the E.U. and China.

Russia's postmodern stance


The Federal Home Loan Mortgage Corporation (FHLMC) (NYSEFRE), commonly known as Freddie Mac, is an insolvent[1] government sponsored enterprise (GSE) of the United States federal government


The FHLMC was created in 1970 to expand the secondary market for mortgages in the US. Along with other GSEs, Freddie Mac buys mortgages on the secondary market, pools them, and sells them as mortgage-backed securities to investors on the open market. This secondary mortgage market increases the supply of money available for mortgages lending and increases the money available for new home purchases. The name, "Freddie Mac", was a creative acronym of the company's full name that had been adopted officially for ease of identification (see "GSEs" below for other examples)


On September 8, 2008, Federal Housing Finance Agency (FHFA) director James B. Lockhart III announced he had put Fannie Mae and Freddie Mac under the conservatorship of the FHFA (see Federal takeover of Fannie Mae and Freddie Mac). The action has been described as "one of the most sweeping government interventions in private financial markets in decades.


Moody's gave Freddie Mac's preferred stock an investment grade rating of A1 until August 22, 2008 when Warren Buffett said publicly that both Freddie Mac and Fannie Mae had tried to attract him and others. Moody's changed the credit rating on rating that day to Baa3, the lowest investment grade credit rating. Freddie's senior debt credit rating remains Aaa/AAA from each of the major ratings agencies Moody's, S&P, and Fitch.[5] As of the start of the conservatorship, the United States Department of the Treasury had contracted to acquire US$1 billion in Freddie Mac senior preferred stock, paying at a rate of 10 percent a year, and the total investment may subsequently rise to as much as US$ 100 billion


Home loan interest rates may go down as a result, and owners of Freddie Mac debt and the Asian central banks who had increased their holdings in these bonds may be protected. Shares of Freddie Mac stock, however, on September 8, 2008 were worth about one U.S. dollar. On the same day the U.S dollar increased in value compared to yen and euros. The yield on U.S Treasury securities rose in anticipation of increased U.S. federal debt






LUCH 2008