Declining US 10-Year Treasury Yield Means Another Treasury Draw is Almost Certain
Both Fannie Mae's (OTCQB:FNMA) and Freddie Mac's (OTCQB:FMCC) earnings are sensitive to interest rates. When Treasury yields tumble, both the GSEs record losses on interest rate sensitive derivatives.
In Q1, net fair value losses were $2.8 billion for Fannie Mae and total fair value losses were $2 billion (after-tax) for Freddie Mac. Fair value gains (losses) fluctuate with the movement of interest rates. Interest rate volatility results in volatile earnings quarter-on-quarter for both Fannie and Freddie.
