The crisis surrounding Fannie Mae and Freddie Mac eased a notch yesterday as the debt of the two US mortgage financiers rallied strongly and Fannie’s stock ended higher, although worries remained that a government bail-out would ultimately be necessary.

The more encouraging market movements came on the back of greater confidence that the agencies would be able to continue enjoying access to funding in the debt markets, which could stave off government intervention.

Debt issued by Fannie and Freddie rallied for a third consecutive session and Fannie’s shares began to show signs of stability after a week of heavy losses, ending 7.7 per cent higher.

However, Freddie’s shares closed 4.3 per cent lower as concerns remained over how the company would raise $5.5bn in capital it promised its regulator in May.

Financial Times