Agencies end flat ahead of long holiday weekend; investors look to supply in week ahead

By Kenneth Lim

Boston, Feb. 18 - Agency spreads had another uneventful session on Friday, closing the day mostly unchanged as investors packed it in early for the long weekend.

Bullet spreads ended flat on the day, said Mary Ann Hurley, vice president of fixed income trading at D.A. Davidson & Co.

"It was very, very quiet today," she said. "From yesterday, spreads are pretty much unchanged."

The callable market also took a step back on Friday.

"We had some callable issuance today, but it was fairly light there as well," Hurley said.

Spreads little changed

Agency spreads did not move much for most of the past week, which was actually comforting for investors because it meant that the market was holding on to the tightening from the week before that.

The recent tightening has been attributed to a report by the Obama administration to Congress that laid out plans for winding down Fannie Mae and Freddie Mac and offer options for the housing finance system once those agencies were gone.

The report also reaffirmed the government's support for existing debt obligations by the agencies, which helped to explain why spreads came in. But the market since then has been content to simply stay put.

"We had a movement after the Treasury report that came out on Fannie Mae and Freddie Mac, but it's still all speculation there and Congress still has to do something, and since then spreads haven't moved very much," Hurley said.

Higher hopes ahead

Friday's market was even quieter because of the long weekend. Monday is a market holiday in observance of Presidents Day.

"A lot of people either didn't come in today or just took off early," Hurley said.

But volumes should pick up after the three-day break, she added.

Supply will be a key theme in the week ahead, with the Treasury Department auctioning two-, five- and seven-year notes from Tuesday through Thursday.

Freddie Mac will also announce on Thursday whether it will be selling Reference Notes as part of a calendar slot.

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