Signals from the Markets for Fannie Mae and Freddie Mac Subordinated Debt

While considerable research exists with respect to the subordinated debt of large banks, little research has been undertaken with respect to Fannie Mae and Freddie Mac. Due to their special status, terms of sub debt and other differences, market signals related to Enterprise sub debt may not be as strong. This paper explores that topic and how sub debt market signals have evolved as Enterprise risk perceptions changed following recent revelations of accounting errors and earnings misstatements.