US CREDIT-Fannie Mae credit spread blowout may be opportunity
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credit, fannie mae February 20th, 2008NEW YORK, Feb 19 (Reuters) - The cost to insure the debt of mortgage finance company Fannie Mae (FNM.N: Quote, Profile, Research) is near all time highs, and any volatility around its earnings may present a good opportunity to sell protection on the company.
The cost to insure Fannie Mae’s debt with credit default swaps jumped to a new high of 77.5 basis points on Tuesday, or $77,500 per year for five years to insure $10 million in debt, according to Markit Intraday. It has risen from 56 basis points at the beginning of February and 39 basis points at the beginning of the year.
“Agency credit default swaps have widened out in sympathy with the barrage of negative news, including losses at mortgage insurers, fear of woes spreading into the prime mortgage market, and credit spreads at historical wides,” Citigroup analysts said in a report sent on Tuesday.
“We believe that the spread widening is overdone and does not reflect how the two government sponsored enterprises (GSEs) stand to benefit from the turmoil in the housing and credit markets,” they said.
Tags: credit, fannie mae
