In a sign that a Treasury Department plan to prop up Fannie Mae and Freddie Mac has boosted bond investors’ confidence, Freddie Mac sold $3 billion in short-term debt Monday in a highly anticipated securities offering.

In Freddie Mac’s weekly auction of unsecured debt, called “reference bills,” investors bought $2 billion of three-month securities at 2.31 percent, an interest rate lower than the company had paid a week earlier. Six-month notes were sold at slightly higher rates than the week before, at 2.5 percent. The bid-to-cover ratio for the three-month securities was 4.16, meaning the company received more than four bids for each one accepted. That was the highest bid-to-cover ratio the company’s three-month bills have fetched since last October.

Freddie Mac uses the funds from such auctions to finance day-to-day operations and has issued $32 billion of such securities in 2008. Both Freddie Mac and Fannie Mae are highly reliant on the unsecured debt markets, noted GimmeCredit analyst Kathleen Shanley in a report. That was one reason why the Treasury Department moved quickly over the weekend to float its proposal for rescuing the two mortgage giants.

Together, their obligations in the mortgage market exceed $5 trillion. “Anything that disrupted the agencies’ funding (access to/cost of) in a material way would be traumatic for the housing sector–not what anyone in Washington wants, especially in an election year,” Shanley wrote.

In another good sign for the mortgage-finance companies, the cost of protecting Freddie Mac or Fannie Mae debt with credit-default swaps fell. It now costs $40,000 a year to protect $10 million of debt from the companies, down from $57,000.

The Treasury Department’s bailout plan, which has to be approved by Congress, does not explicitly back Freddie Mac’s or Fannie Mae’s debt. But it does provide for larger credit lines for the two mortgage purchasers and calls for Treasury to buy equity stakes in both companies if necessary.

For Fannie Mae, the test of investor sentiment comes Wednesday, when it’s scheduled to put $3 billion in short-term bills up for sale.

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