Fannie, Freddie Debt in Demand --- Investors See Bonds as Safe as Treasurys, but Higher Yields
Prices of mortgage securities issued by government agencies -- Fannie Mae, Freddie Mac and Ginnie Mae -- climbed to 15-year highs amid a surge in demand for investments that are as safe as Treasurys but offer better returns.</br></br>These bonds, which are effectively guaranteed by the U.S. government, now trade above their face value. Fannie Mae 30-year bonds with a 4.5% coupon rose to $103.406 for each $100 of face value. The 4% coupon bond rose as high as $101 before fall back to $100.781.</br></br>At those prices, these so-called agency bonds yield about 1.5% more on an annual basis than comparable Treasury securities, and many buyers consider them just as safe as Treasurys.</br></br>"Mortgages have become a flight-to-quality instrument," said Mahesh Swaminathan, strategist with Credit Suisse.</br></br>The perception that these bonds are guaranteed by the U.S. government, which took control of the faltering mortgage companies in the depths of the credit crisis, has been a lure to many foreign investors.