Agency spreads stagnant; Freddie Mac to add an expected $3 billion to $5 billion of supply

By Lisa Kerner

Charlotte, N.C., Oct. 19 - Agency spreads did "absolutely nothing" on Monday, according to a trader.

However, another source saw the five-year and out sectors out by 1 to 2 basis points.

Loop Capital's Chris Denker said agencies underperformed swaps by 1 to 3 bps.

Everyone who was asked to comment on agency activity called the day "quiet."

Michael Skinner, a trader with Wall Street Access, said investors seem to still be "sitting on the fence" and people are still uncertain about the economy given what it was like this time last year.

Freddie a 'blowout'

The hot topic of the day was Freddie Mac's announcement that it will price new two-year Reference Notes at benchmark size on Tuesday.

According to Freddie Mac, the notes will be due Dec. 15, 2011 and will be offered via a syndicate of dealers led by Goldman Sachs, Citigroup Global Markets Inc. and Morgan Stanley.

Denker and Skinner both said talk had the issue at 26 basis points over the two-year Treasury.

Skinner heard that there were $3.5 billion of orders, while Denker said the deal was going "fairly well" as was expected because it is the first from Freddie Mac in that sector since spring.

Brandon Wann, a trader with Vining Sparks, called the new issue a "blowout" and said it has been "a great deal" so far.

The issue is expected to fall in the range of $3 billion to $5 billion, according to Denker.

Wann and Skinner said to look for new supply from Fannie Mae on Thursday.

In addition to the Freddie Mac announcement, the traders said the recent Barron's article calling on Federal Reserve chairman Ben Bernanke to raise short-term interest rates was causing quite a bit of talk in their offices.

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