Agency spreads tighten 2 to 6 bps as Fannie skips issuance, Fed maintains buyback program

By Kenneth Lim

Boston, June 25 - Agency spreads tightened Thursday on a combination of a skipped Fannie Mae issuance and the Federal Reserve's commitment to a debt buyback program.

Spreads on two-year agency notes moved in about 3 to 4 basis points, while three-years narrowed about 3 to 5 bps, an agency trader said. The five-year spread was in about 5 to 6 bps.

"It was a very good move," the trader said.

Fannie Mae skips June

Fannie Mae skipped its second scheduled issuance of Benchmark Notes on Thursday, which means that the housing and mortgage financing agency did not issue any of the notes in June.

A representative for Fannie Mae declined to comment on why the agency chose not to issue Benchmark securities in July.

The skipped issuance helped to pull spreads inwards, MF Global Ltd. head of agencies Mark Noble said.

"It is less supply, and we are seeing strong demand," he said.

Noble was not too surprised by the two skipped announcements in June, and noted that the company will have another opportunity to raise funds in about two weeks.

"I'd be more surprised if they passed then," he said. "That would be skipping three possible announcement dates, and they don't have another one in the month of July, so that would be skipping two full months."

Fed buybacks lend support

The Federal Reserve's decision on Wednesday to continue its buyback program for agencies, mortgages and Treasuries - announced as part of the statement from the Federal Open Market Committee - also helped to pull in spreads, Noble said.

"The Fed has been very accommodative in buying the bonds," he said, adding: "There's a very good balance that's helping spreads compress from levels we haven't seen since the crisis."

Noble saw positive signs as the month draws to a close.

"There's a lack of supply, and with possibly month-end buying, it's causing strong performance of agency spreads to Treasuries," Noble said.

© 2015 Prospect News.
All content on this website is protected by copyright law in the U.S. and elsewhere. For the use of the person downloading only.
Redistribution and copying are prohibited by law without written permission in advance from Prospect News.
Redistribution or copying includes e-mailing, printing multiple copies or any other form of reproduction.