Political Catalyst: President Trump has reignited the push for Government Sponsored Entity (GSE) privatization, citing strong cash flows. On May 21st, the Wall Street Journal reported on internal administration documents citing a $330B valuation for the enterprises. The privatization talks have spurred interest in the public shares of the GSE’s, however execution hinges on resolving capital rules and structural constraints.

Short Interest Trend: FNMA short interest has risen from under 6M shares in December 2024 to 26M on June 11th, with short float climbing from <0.5% to 2.2% at present, signaling growing caution or strategic hedging. The short position may include hedges to long positions in preferred shares.

Structural Uncertainty: The proposed recap model blends public ownership with an implicit guarantee to support the TBA MBS market, but faces complex regulatory and political hurdles.

Freddie Mac Divergence: Despite similar fundamentals, short interest in Freddie Mac (FMCC) has declined YTD after an initial spike following US election—in part due to lower trading liquidity and higher borrow costs (70bps vs. FNMA’s 30bps).

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