Derivatives Traders Downgrade Fannie and Freddie
Jul 9th, 2008 | By Contrarian Profits | Category: Featured, Financial NewsThe world’s largest credit-rating companies say mortgage lenders Fannie Mae (FNM) and Freddie Mac (FRE) have bullet-proof Aaa credit ratings. But Bloomberg says derivatives traders are treating the discount mortgage brokers as if they are rated five levels lower.
And, ominously, the price of contracts used to speculate on the creditworthiness of Fannie Mae and Freddie Mac and to protect against a default doubled in the past two months.
What about the government’s implied guarantee of the debt held by the companies? It seems investor confidence in short supply.