Fannie, Freddie subordinated debt CDS hit record

The cost to insure the subordinated debt of Fannie Mae and Freddie Mac hit new highs on Monday, a day after Barron's reported an increasing likelihood the US Treasury may essentially take over the mortgage finance companies. Merrill Lynch analyst Kenneth Bruce also said in a note to clients that Freddie Mac may have to raise $5.5 billion in capital as early as the third quarter, instead of the second quarter of 2009.
Credit default swaps on Fannie Mae and Freddie Mac's subordinated bonds each widened by around 27 basis points to around 305 basis points, or $305,000 per year for five years to insure $10 million in debt, according to Markit Intraday. Debt insurance costs on Fannie Mae and Freddie Mac's top rated senior debt rose by around 1.5 basis points to 50.5 basis points, according to Markit.