Fannie Mae makes record $1.5b global bond issue

The Federal National Mortgage Association (Fannie Mae), the biggest mortgage corporation in the United States, has launched a $1.5 billion five-year fixed rate global bond issue.

The issue is the largest fixed-rate local currency issue in Hong Kong to date.

The issue is offered at 99.83 per cent of its face value and pays a coupon of 6.85 per cent, which translates into a yield of 6.89 per cent.

HSBC Markets' head of Hong Kong dollar bond markets, Anita Fung, said the issue had been prompted by optimism in the Hong Kong currency after the handover.

The optimism effectively reduced the spread of yield on Hong Kong dollar papers over that of US dollar papers from almost 1 per cent at the beginning of this year to 30 basis points recently.

This squeeze in spread reduces issuers' funding costs, making it more attractive to raise funds here.

The yield for this issue is 34.5 basis points higher than that of Hong Kong Exchange Fund Notes and 61.6 basis points higher than US Treasury Bonds of the same maturity.

Commonwealth Bank of Australia spokesman Andrew Fung Hau-chung said the Hong Kong dollar fixed-rate market had been very quiet in the first half, with only three public issues so far.

The absence of adequate issues has left many fund managers' portfolios bare, accumulating a demand for this jumbo issue. Another market source said this issue reaffirmed the confidence of triple-A issuers like Fannie Mae in the local dollar market.

Fannie Mae has been appointed as an adviser to the Hong Kong Mortgage Corp.

Its director of international housing financial services, Pamela Lamoreaux, is now working in the government-owned body.