Fannie Mae Record $15 Billion Two-Year Note Sold At Treasurys +68BPS

Fannie Mae's (FNM) record $15 billion two-year note sold at 68 basis points over comparable Treasurys.

The size of the deal, which had orders around $20 billion, shows that markets supported by the government continue to see interest for investors looking for a safe haven.

"The market response to the two-year Fannie, with a book reported in excess of $20 billion" was "directly related" to price concessions, Jim Vogel of FTN Financial said in a note to clients.

The premium is over 20 basis points when compared with existing bonds of similar duration.

This is the second bond deal this month from the mortgage-finance company, and it is offered in a favorable environment. Fannie sold a larger-than-expected $7 billion of five-year benchmark notes at 93 basis points over comparable Treasury notes to yield 2.767% on Feb. 3.

Huge investor demand for these issues has driven up the size of the handful of previous debt offerings by both Fannie and Freddie Mac (FRE) this year.

Fannie's previous two-year $7 billion deal sold on Sept. 10, 2008, at 70 basis points over Treasurys to yield 2.896%. The note sold Thursday has a yield of 1.801%.

U.S. investors had bought 63% of the previous deal and Asian investors bought 12% of it.

The Federal Reserve's support of this market through its purchase of debt securities issued by Fannie, Freddie and the Federal Home Loan Bank system and the perceived tightening of ties between the government and the mortgage companies has boosted investor interest.

The central bank to date has bought $35.7 billion of these debt securities from investors, and is expected to buy $100 billion worth, or more, if necessary.

In addition, recent announcements from the U.S. Treasury - including the increase to $200 billion each of the credit lines offered to Fannie and Freddie if their net worth turns negative - have rallied investor confidence.

An added lure to buyers has been the good performance in the secondary market of agency bonds in the past couple of weeks. The tightening of risk premiums, especially when compared with the widening of some of the corporate bonds issued with the Federal Deposit Insurance Corp. guarantee, has brought fresh buyers to this market.

Joint leads on the Fannie deal, due to be sold later Thursday, are J.P. Morgan, Barclays Capital and UBS Securities.

-By Anusha Shrivastava, Dow Jones Newswires; 201-938-2371; [e-mail]

(Prabha Natarajan contributed to this report)