“Fannie, Freddie Mortgage-Bond Spreads Hit Widest Since March”, by Jody Shenn, Bloomberg, October 27, 2008.

The increase in mortgage-bond spreads has come as the debt costs for Fannie and McLean, Virginia-based Freddie, the largest holders of their own securities, again rose to records last week after the companies’ regulator sowed confusion over their level of federal support.
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Foreign central-bank holdings of agency debt and agency mortgage bonds dropped $47 billion over four weeks to $923.4 billion in the week ended Oct. 22, Federal Reserve data show. The holdings are down from a record $983.9 billion on July 16.

“People have developed a lot more of their own problems in the last six weeks, than they had three months ago,” RiverSource’s Jackson said in a telephone interview. “Countries, really just like banks, need to hold liquidity to prop up their own financial well-being and they’re not going to lend that out to other people.”
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When taking Fannie and Freddie over, Treasury Secretary Henry Paulson said he would direct the companies to increase their $1.5 trillion mortgage-asset portfolios and have his department start buying their home-loan bonds to help lower the cost of home financing.

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a bit later … WireGuy has weighed in on this:

“Problems Pile Up in Agency MBS Market”, by Paul Jackson, HousingWire, October 27, 2008.

For those in the primary mortgage markets, such widening spreads usually portends higher mortgage rates for borrowers — although in this market, just about anything that used to hold true about the mortgage market has pretty much been turned on its head.
…

Market imbalances notwithstanding, HW’s sources have been far more concerned lately about a separate development: the dearth of overseas buyers for agency MBS in recent weeks. Foreign central-bank holdings of agency debt and agency mortgage bonds fell $47 billion to $923.4 billion in the four weeks ended Oct. 22, according to data released by the Federal Reserve; more than a few media reports have suggested in recent weeks that the flight of foreign money out of the agency MBS market reflected some fundamental concern over credit.

Not so, according to many of HW’s sources. Instead, we were told, at issue is liquidity and a crisis that has now expanded well beyond U.S. borders — foreign governments, much like any private corporation, are looking to put themselves into the most liquid position possible to ensure they can bail out their own banks, we’re told. And, sort of in an unintended consequences sort of way, the U.S. government’s own actions to bail out the banking sector have made agency MBS less liquid than other potential investments.

“Lockhart’s Remarks Confuse GSE Debt, MBS Investors”, by Paul Jackson, HousingWire, Oct 24, 2008.

Friday morning, investors were still grappling with Lockhart’s choice of words, and asking: what’s the difference between an effective and an explicit guarantee? The difference probably is as simple as degrees — an effective guarantee being one degree away from direct government funding. [emphasis in original this time]

Thanks for dropping by

If other Asian Tigers decide to follow Taipei, it’s not obvious who’s going to buy the stuff. I’m especially worried about Mohamed El-Erian and his good buddy Bill Gross. This from the Barron’s article (#3 above): “$130 billion Pimco Total Return Bond fund … boosted its holdings of MBS (primarily Fannies and Freddies) to 79% by the end of September. That was the highest since June 2000 and an increase from 69% at the end of September.” [obviously wrong, I think it's MoM from end of August -- OK, on second thought Sept '07? YoY? (one month awfully short for that big a move, I just don't know)]

Looks like those guys are full up. Perhaps Kashkari will need to buy a lot of conforming US mortgages in the near future to bail out Hank’s buddy Bill. Who else would be able to?

Yup John, same news you posted in the comment just above. Taiwan is done investing in mortgage debt. Took ‘em a while to see the light, didn’t it?

“Taiwan Dumps Fannie, Freddie. And Uncle Sam? Despite bailout, GSE debt is eschewed by major foreign investor, and ally”, by Randall W. Forsyth, Forbes, October 24, 2008.

Now Washington might well worry about who lost Taiwan as a major investor in U.S. agency securities as the Republic of China has openly questioned their credit quality — even after the federal government has committed hundreds of billions of dollars to bail out mortgage giants Fannie Mae and Freddie Mac.

Beyond that, Washington might well worry that other nations also no longer view its agencies — and now, by extension, the very credit of the United States of America — beyond question.
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In either case, the Taiwanese action is a blow to the reeling U.S. mortgage market, which has been supported by the Republic of China’s purchases of agency securities. According to U.S. Treasury data, Taiwan owned a very substantial $55 billion of U.S. agencies along with $43 billion of Treasuries as of June 30, 2007, the most recent date for which these data are available.
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Despite those actions to prop up the GSEs, yields on Fannie and Freddie debt securities have continued to rise to record spreads over Treasuries. Two-year Fannie notes were yielding almost 140 basis points (1.40 percentage points) over Treasuries while 10-year Freddie notes traded 95 basis points over the corresponding Treasury note. Those extraordinary yield premiums for what are, de facto, U.S. government obligations.

“Wall Street Breakfast: Must-Know News”, by Rachael Granby, SeekingAlpha, October 24, 2008.

Confusion on Fannie/Freddie debt. Risk premiums on debt securities from Fannie Mae and Freddie Mac reversed course, first tightening up to 0.07% and then widening by 0.02%, on confusion about the government’s guarantee of these bonds. Federal Housing Finance Agency [FHFA] Director James Lockhart had said the government’s seizure of Fannie Mae and Freddie Mac represents “explicit” support for the companies’ debt and mortgage-backed securities, but FHFA later distanced itself from those comments and said debtholders have only an “effective” guarantee. The practical difference between Lockhart’s “explicit” and FHFA’s “effective” remains unclear to investors, nor is it known whether Lockhart’s language reflects a forthcoming policy change.

“Regulator: GSE debt does not carry full faith, credit”, Reuters, October 24, 2008.

“It is not a full faith and credit,” James Lockhart, the director of the Federal Housing Finance Agency, told the Senate Banking Committee.

“It is an effective guarantee because there is a $100 billion backing their equity provided by the U.S. Treasury that does give them, effectively, a guarantee of the U.S. government.”

Effectively my @^%$$

With Roubini’s estimate for the damage already above the cap, there’s almost no way a haircut for the bondholders isn’t already baked into the pie.