Agency spreads tighten, three-years gain 2 bps as Treasury provides supply

By Lisa Kerner

Charlotte, N.C., March 10 - Three-year agencies tightened 2 basis points in trading Tuesday as the Treasury held its auction of a record $34 billion in three-year notes, the first of three government auctions slated for the week.

The auction may have contributed to the tightening in the three-year sector, but overall agencies weren't affected too much by Tuesday's increased supply, according to one trader.

Agencies traded "pretty well" on Tuesday, with a good amount of interest in the three-year part of the curve, the trader added.

The trader wouldn't speculate on what impact, if any, the Treasury's auction of $18 billion in 10-year notes on Wednesday will have on agencies but did say the rally in stocks is driving the market.

The Treasury will auction $11 billion in 30-year bonds on Thursday, bringing its auction total for the week to $63 billion in notes and bonds.

Spreads were tighter overall by 2 bps on Tuesday, with the five-year and 10-year both in by 1.5 bps, a source said.

The tightening was attributed to Treasuries' move to higher yields, said the source.

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