Agency spreads tighten 3 to 6 bps; Fannie Mae won't add to supply

By Lisa Kerner

Charlotte, N.C., June 2 - Agency spreads ended 3 to 6 basis points tighter across the curve Tuesday, with the 10-year sector tightening 5 to 6 bps, according to a source.

Movement in the 10-year sector may be related to an expected buyback by the Federal Reserve this week or could be the result of some buying in the long end, the source said.

Fannie Mae's decision to forego the issuance of its Benchmark Notes on Tuesday is significant, said the source.

The source heard that a 10-year note was recommended but it was expected that Fannie Mae would issue a two- or three-year note.

In the end, Fannie Mae did nothing, which may have caused spreads to tighten, the source said.

Freddie Mac's announcement on Monday that will hold cash tender offers this week for up to $30 billion of targeted securities was not as significant for the source.

According to the source, the tender is for "floaters and front-end type stuff."

The securities, which had a total principal amount outstanding of $69.9 billion, ranged in maturity from September 2009 to August 2010, a Freddie Mac news release said.

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