The dozen Federal Home Loan Banks combined are expected to sell more long-term debt this year than Fannie Mae and Freddie Mac. While Fannie Mae and Freddie Mac have long been considered the 800-pound gorillas of the agency debt market, the FHLBs actually surged ahead last year in long-term debt issuance and will likely do so again this year, according to researchers.
William Prophet, interest-rate strategist at UBS, forecasts FHLB issuance will reach $225 billion this year, versus $125 billion for Freddie Mac and $96 billion for Fannie Mae. This assumes growth rates of 8% and 3%, respectively, for their retained portfolios this year, he said.
As a result of the sea change, Prophet warned investors to do their homework on the FHLBs as they become the larger part of the agency market. "With 12 member banks, a mix of business and some of the banks on credit watch, there are a lot of variables involved. Unless [investors] understand the the FHLBs' business model, they'll be behind the curve," he said.
