A $3 billion offering of five-year reference notes by Freddie Mac could mark the return to the pre-crisis way of doing business for the government-sponsored enterprise.

Freddie said the bond issue, which was priced on Wednesday, is the first since the crisis began that did not offer sweeteners to make the securities more attractive to investors than existing debt.

"This is our first deal … that we haven't offered a new-issue concession to the deals outstanding," said Devajyoti Ghose, Freddie's vice president of debt portfolio management. "There wasn't as much of a need to offer it, and we got the three billion."

Since the beginning of the credit crisis, Freddie Mac and Fannie Mae have had to offer rich risk premiums to attract enough investors to their offerings. Simultaneously, the Federal Reserve Board has been making a market in these so-called agency bonds, creating essentially a buyer of last resort.

The result was something of a flipper's market.

"The game was to buy … [the debt] at concession and then sell it into the Fed if you needed to," said Margaret Kerins, a managing director for agency debt at Royal Bank of Scotland Group PLC's RBS Greenwich Capital. "I think that was driving demand in the market."

This week Freddie decided to take a stand, saying it would issue the notes at 5 basis points below the London interbank offered rate, very near where comparable notes were trading in the secondary market.

The price guidance was a signal that with lower funding needs for the immediate future, Freddie was going to play tough.

"Earlier in the year, investors would say, 'wow that looks like a steal, I'll buy the whole thing.' That's not what we're looking for," Ghose said. "We're looking for a quality book that performs well in the secondary" market, implying fewer flippers.

Initially, investor response was weaker. But the market sold off overnight and yields rose. Freddie raised its offer to match those higher yields, bringing investors back to the table. The offering ended up oversubscribed, though not as heavily as the previous offerings, according to Kerins.

However, Ghose acknowledged that as market volatility persists, Freddie reserves the right to offer further concessions in the future.

Subscribe Now

Access to authoritative analysis and perspective and our data-driven report series.

14-Day Free Trial

No credit card required. Complete access to articles, breaking news and industry data.