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Freddie Mac notes popular with Asians

By Al Yoon
Bloomberg News

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Freddie Mac, the second-biggest provider of financing for U.S. residential mortgages, said investors in Asia purchased a record 40 percent of its $3 billion five-year reference note sale.

Foreign investors accounted for 48 percent of the notes, which pay an interest rate of 4 percent and were priced to yield 0.305 percentage point more than the U.S. Treasury's five-year note, said Michael Cosgrove, a Freddie Mac spokesman. Investors in Asia accounted for 13 percent and 29 percent of Freddie Mac's last two five-year note sales, he said.

The increase in demand from Asia comes as concern mounts that a drop in the U.S. dollar to its lowest in almost five years against the Japanese yen and to a record low versus the euro will dampen the appeal of dollar-denominated securities.

Last month Federal Reserve Chairman Alan Greenspan said foreign investors would "at some point" begin diversifying into other currencies amid a growing U.S. deficit.

Foreign demand was "so strong," said Jeanmarie Genirs, head of U.S. agency trading and underwriting at Deutsche Bank Securities, in an email. Deutsche Bank sold a "very high" 65 percent of its allocation to international investors, she said.

The Federal Reserve held a record $260.4 billion in so-called agency debt in custody for foreign central banks as of Dec. 1, the Fed said. Foreign holdings of agency debt rose from $255.5 billion in the previous week and are up by 23 percent this year. Central banks bought 28 percent of Freddie Mac's notes yesterday, Cosgrove said.

At 4:20 p.m. in New York, traders bid for the notes at the original spread, and offered to sell at lower, 0.3 percentage point gap, according to Bank of America Securities.

Freddie Mac Chief Executive Officer Richard Syron last month toured several Asian nations where investors told him that they intended to continue purchasing U.S. dollar-denominated securities, said Peter Mahoney, a vice president in Freddie Mac's investor-relations department.

Freddie Mac holds a charter from Congress to provide financing for home loans. The company makes most of its profit on the difference between its cost to borrow in the bond market and the returns on mortgages and mortgage securities it buys. It also earns money by charging lenders a fee for guaranteeing credit on mortgage-backed bonds.

The company and its chairman, Seattle native Franklin Raines, have been under fire recently from regulators and Congress for accounting irregularities called "smoothing," which helps achieve profit targets that trigger large executive bonuses.

Copyright © 2004 The Seattle Times Company

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