Fannie and Freddie Bonds

[Hank]

I own two of the vanguard bond indexes. The short term bond index and the total bond index. These have held up pretty good so far. One of my questions is that I don't understand what they are holding from Fannie and Freddie in terms of bonds. The portfolio section of vanguard shows the bonds that they hold and their coupon, maturity date, face value and current market value. But exactly what kind of bonds are these? I can't really look up the specific security, right?

My main question is how should I view the credit risk of Fannie and Freddie. Both of these companies are in danger of getting delisted and both are insolvent. With the governments takeover I initially felt that the so-called implicit US guarantee of the debt was now explicit. But this is not the case since the US hasn't stated explicitly that they will guarantee the debt. The Fannie web site says this as well. Bill Gross says there is no credit risk because the gov't will pay the debt if it has to but doesn't want to give an explicit guarantee because it will adversely effect the Federal balance sheet. (no kidding).

The total bond fund has 40% of its assets in this paper.

This week the spreads on Fannie and Freddie debt hit a high against treasuries. This worries me. What is Mr. Market thinking? The spreads should have been shrinking after the governments take over.

Any help on understanding this better would be appreciated.

[brewer12345]

Total bonds' agency paper is almost certainly largely MBS guaranteed by Fannie and Freddie. This is paper backed by pools of mortgages with the agency's guarantee on top of the security provided by the collateral. I would regard this paper as money good without a doubt and nothing to worry about. The gummint will never let this paper go bad.

[Hank]

Thanks Brewer. That's what I figured but it helps to hear again.

[chinaco]

It is good to hear... because many bond funds are loaded with it.

[Hank]

It's hard to have confidence in the "full faith and credit of the US Government" these days and I imagine the foreign holders would love to have an alternative to holding all this paper. So who's bonds would I buy? China? India? France? England? South Korea? Things are bad in the US but they ain't so great anywhere else either at the moment.