Agencies firm as market awaits Fannie Mae announcement; Fed lending change seen as positive

By Kenneth Lim

Boston, July 7 - Agency spreads held steady on Tuesday as the market held steady on expectations of a Fannie Mae Benchmark Note issuance this week.

The market also responded positively to news that the Federal Reserve Bank of New York will make available for loan the housing-related agency paper that it currently holds.

"Agency spreads were fairly stable," said MF Global agency head Mark Noble. "It was mostly unchanged. Everyone's in waiting mode."

The Street expects Fannie Mae to issue about $3 billion of two- or three-year Benchmark Notes in its scheduled announcement Wednesday, Noble said. But it is still possible that the housing agency, which skipped both announcements in June, could pass on its only scheduled issuance for July.

"There's an outside chance that they pass because of their lack of need for funding," he said.

Fed to lend securities

The Fed said Tuesday that beginning with the noon operation on July 9, 2009, agency paper held in its System Open Market Access portfolio will be offered for loan in the daily SOMA securities lending auctions. That paper is on the SOMA portfolio because of the Fed's open-market purchases of securities issued by the housing-related government sponsored enterprises Fannie Mae, Freddie Mac and the Federal Home Loan Banks.

A representative for the Fed declined to comment, but noted that when the buying program was initiated, the Fed had indicated the possibility of lending the securities that it buys.

Noble said the move would be a positive boost for liquidity in the agency market.

"It should help liquidity for investors as dealers were always concerned about selling bonds and the Fed was buying them up," he said.

The Fed's announcement should also be seen as a reaffirmation of its commitment to the buying program.

"They're kind of saying they're not going to stop the program," Noble said. "It's a net positive for agencies both from a liquidity standpoint, and I think a small net positive from the fact that the Fed's not done with its buying."

© 2015 Prospect News.
All content on this website is protected by copyright law in the U.S. and elsewhere. For the use of the person downloading only.
Redistribution and copying are prohibited by law without written permission in advance from Prospect News.
Redistribution or copying includes e-mailing, printing multiple copies or any other form of reproduction.