Bonds Backed by Fannie, Freddie Rally

Wall Street Journal Asia (07/24/08) P. C3; Natarajan, Prabha
Mortgage bonds guaranteed by Fannie Mae and Freddie Mac are rallying as Capitol Hill legislators draw closer to approval of a housing bill that includes a bailout of the two government-sponsored enterprises. However, the market continues to face its share of challenges, most notably a reduced role for both GSEs as they look to bolster their bottom lines. The absence of Fannie Mae and Freddie Mac as buyers of the mortgage bonds they guarantee for their own investment portfolios is an unintended consequence of the turmoil engulfing them. Risk premiums on these bonds, known as agency bonds, widened sharply in recent sessions amid concerns that the GSEs could scale back their purchases.