The fixed income markets rallied a bit Monday on the back of weak equities, but watch out for the headlines Tuesday.

The conservative American Enterprise Institute (AEI) has a day long seminar on the subject of government-sponsored enterprises (GSEs) such as Freddie Mac and Fannie Mae. One very recent study from AEI concluded that uncontrolled growth at Fannie Mae and Freddie Mac poses a threat of another expensive taxpayer-financed bailout and that "change is inevitable; it's only a matter of time." Congressman Baker will speak tomorrow, Treasury representatives will be in attendance as will representatives of Freddie Mac and the Federal Reserve. One fast headline from some reporter in the audience talking about a potential withdrawal of the implicit government guarantee of these institutions, and both the bond and equity markets will have yet another excuse to fall apart.

Elsewhere, Monday's fall in global equity markets (even with Wall Street's attempted late day rebound) was about as we expected it -- still sick and likely to continue that way all the way into the week of June 5th.

UPDATE: Here was the outline that did subsequently appear Tuesday. Note that the S&P and Nasdaq turned significantly lower immediately thereafter.

TUESDAY, MAY 23, 2000 2:05 PM
-Reuters

WASHINGTON, May 23 (Reuters) - A Congressman pushing for a curtailment of U.S. government sponsored enterprises (GSE) said on Tuesday he would ask the Congressional Budget Office to estimate the subsidies they were receiving.

"I intend to issue a letter to CBO to ask them them to update the current value of that subsidy," Louisiana Republican Representative Richard Baker said in remarks before a conference of mortgage and banking industry officials.

The CBO last estimated what the U.S. government's backing was worth for housing agencies like Freddie Mac (NYSE:FNM) and Fannie Mae (NYSE:FRE) in 1995.

The study by the CBO -- the investigative arm of Congress -- concluded the subsidy provided to the GSEs was worth $6.5 billion a year, of which the institutions' shareholders kept $2.1 billion.

Rtr 14:05 05-23-00

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