Agency spreads slightly tighter; Freddie Mac may add to supply; wait for Bernanke continues

By Lisa Kerner

Charlotte, N.C., Aug. 24 - Agency spreads were a "couple" basis points tighter on the short end and about 1 bp tighter for the five-year sector, according to one trader.

A second trader also commented on the five-year sector, saying it tightened "marginally," influenced by mortgage and investment-grade activity.

Neither trader was very excited about Wednesday's activity overall, as the "wait-and-see attitude" continued.

Freddie Mac is on the calendar to make a Reference Note announcement on Thursday, which one trader believes will be in the amount of $2 billion to $4 billion and "in the belly of the curve."

The agency did not issue a Reference Note at its last opportunity on Aug. 2.

It is still Federal Reserve chairman Ben Bernanke's speech on Friday that has everyone more or less holding their breath, according to the trader.

Bernanke is speaking at the Federal Reserve Bank of Kansas City Economic Symposium in Jackson Hole, Wyo.

"He will say the right things. He has to be a cheerleader," said the trader, noting that the markets are seeking consistency.

There is a chance, however, that Bernanke may not say everything investors are hoping to hear.

"It is too soon after QE2 for a QE3," he said.

Also on Wednesday, the trader said, there were rumors that President Obama was crafting a jobs plan that would somehow address a way to kick-start mortgages.

Looking ahead, the trader said the flight to quality will continue, with everybody going to the short end, "where it is safe."

He noted that in addition to worries about what Bernanke will or will not say, investors are keeping an eye on the turmoil in the European markets and U.S. unemployment. In fact, the trader believes people will play it safe through September or possibly October.

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