Agency spreads stay strong in the front end; month-end expected to spur more buying

By Lisa Kerner

Charlotte, N.C., Sept. 29 - Agency spreads started the day strong and stayed stronger in the front end, with front-end paper "well bid," a trader said on Wednesday.

Spreads were better by 1 basis point in the front end versus swaps. The three-year was a little cheaper to swaps but mixed versus Treasuries.

The five-year was better versus swaps, while the back end of the curve "sat quietly," the trader said.

Overall on the day, agencies were unchanged to a half basis point tighter, another market source said.

Despite a lack of activity, the general tone for agencies remained firm, the source said, adding the he feels like agencies "are holding up well."

Buying is expected to pick up on Thursday as September comes to a close, although it's not so bad to hold on to investments because of the 30-day month, according to the trader.

"A lot of the street has been trying to accumulate paper ahead of extension ahead of quarter-end demand," he said.

"People are expecting some buying at the end of the month, but you never know," the source said.

With a lack of new supply on the horizon, agencies are going to reduce portfolios.

The dynamics of supply and demand favor tighter spreads, the source noted.

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