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"The topic du jour is Fannie and Freddie"

“The topic du jour is Fannie and Freddie.
Clearly, the market is looking for a solution that is permanent, clear and definitive. That dwarfs everything.”
Financial Times, August 24 2008

The Lehman Brothers Credit index for US investment grade companies closed at 270 basis points over US Treasuries last Wednesday, a record high since the early 1990s.

One of the biggest concerns is the health of Fannie Mae and Freddie Mac, the US government-sponsored enterprises that have run into trouble because of the US mortgage crisis. The mortgage financiers, which underpin the US housing market, paid the price for these worries when both were forced to pay record high risk premiums on dollar-denominated bonds this month.

Other issuers forced to pay very high yields over government bonds this month include Citigroup, American Express, AIG and Deutsche Telekom.

Jim Reid, a credit strategist at Deutsche Bank, said:
“I think it is fair to say the crisis is deepening because people are very worried about the health of some financial institutions. Will more fail?
The fact is, if you mark to market some of the illiquid assets the banks hold, at prices they could sell them in today’s climate, it could make many of them insolvent.

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