Most market observers considered Freddie Mac's decision to tap the European market - which it announced last week as its EuroReference Note program - to be a positive step for the government-sponsored enterprise as it attempts to broaden its distribution as much as possible.

The new EURO20 billion borrowing program seemed to be warmly received when the pre-announcement was made, and the issuance, at EURO5 billion per quarter, is intended to deepen the GSE's investor pool by filling a much-needed niche in the European market.

"They've been taking out of the same well for so long, I figured they would go to a different pond at some point," said one investor knowledgeable about the program.

"Eighteen billion dollars of notes abroad is a sign of the globalization of the fixed-income markets," added Art Frank, head mortgage-backed researcher at Nomura Securities. "Freddie wants to spread out globally the people who will buy their debt."

According to Frank, the new Euro program will amount to approximately 15% of the GSE's annual issuance, so it would only marginally reduce what the agency otherwise would issue in the U.S. markets.

"You could view this initiative as a diversification strategy, where we are trying to tap into new pools of capital," said Jonathan Prince, the head of debt marketing at Freddie Mac. "Given our mission, we are planning to finance housing in America going forward, and this is consistent with our long-term commitment. This allows us to have new sources of capital with which to finance housing and both balances and diversifies our source of funding from U.S. dollars to include other currencies as well."

Still, some market participants wondered whether the hoopla this year over the Baker bill in Congress and the criticism of the GSEs' continuing growth would affect how the new program is perceived abroad, and whether, in fact, it points to the unbridled growth which the critics speak of.

Prince contends that the Euro program is indeed mission-specific and complementary to the mission of the GSEs and, in fact, will somewhat lower interest rates for mortgages.

"This borrowing is not growth, directly," Prince said. "These kinds of borrowings could be used to restructure the existing balance sheet, so it ought not be inferred that we'll grow by 20 billion Euro as a result of the inauguration of this program."

As to how it would be received in Europe, Prince also stated that the agency's experience has been that European investors have remained very well informed with respect to Freddie Mac, its charter and its relationship to the government and would naturally be following very closely all of the political developments which transpired this year.

That being said, the GSE has been delighted by the initial reception of the market to the announcement of the program.

"I think the Baker bill issue has really died down," noted Nomura's Frank. "Not a single election speech so far has hit on the issue of GSE regulation. It may affect spreads in where the issuance can be placed but a lot of air seems to have gone out of the issue."

While very similar to its U.S.-dollar quarterly program, the only distinction between the Euro program and its U.S. counterpart is that the U.S. program is further along in its maturity and specifically: the U.S. financing calendar features more specificity with regard to the minimum size of maturities and of settlement dates. The European calendar, on the other hand, only says that there will be quarterly offerings.

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