Agency spreads expand as Treasury yields fall; Fannie plans $3 to $4 billion, source says

By Kenneth Lim

Boston, July 8 - Longer-term agency spreads shifted outwards on Wednesday as Treasury yields contracted sharply and Fannie Mae announced an issuance of three-year Benchmark Notes.

Five-year agency spreads widened by about 2 basis points, an agency trader said. Seven-year spreads expanded by about 1.5 bps while 10-years were out about 1 bps.

"We've seen some spread-widening today, probably just because of the move in the Treasury curve," the trader said.

The yields on 10-year Treasury debt fell more than 15 basis points on Wednesday after a strong auction. The Treasury sold $19 billion of 10-year notes, according to a press release.

"We've seen, with the 10-year auction coming out as strongly as it was, yields are lower across the curve," the trader added. "You've seen some profit taking."

Fannie to offer Benchmarks

Fannie Mae on Wednesday said it will issue three-year Benchmark Notes, its only scheduled announcement for the month.

The deal amount was in the $3 billion to $4 billion range with a spread of about 32 to 33 basis points over Treasuries, the trader said.

"The deal's already oversubscribed," the trader said.

The size of the deal was not a surprise for the market, which had been expecting a small issuance from Fannie Mae, the trader said.

"I think as far as the deal size goes, I think there was some uncertainty there, but I would say $3 billion to $4 billion is what's expected, but it's a small deal," the trader said.

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