Agency spreads stagnant on low volume, rising Treasuries; new orders fall; new supply Tuesday

By Lisa Kerner

Charlotte, N.C., Oct. 4 - Agency spreads were unchanged on a slow Monday that saw little volume, and little flow is expected for the week, according to one trader.

The agency market needs something to validate its current levels such as quantitative easing or more weakness in the economy, which may be seen when new unemployment numbers come out, the trader added.

Another source concurred that the day was slow, adding that agencies were coming off a "nasty" tone last week.

"We saw swaps moving wider last week and agencies did too," said the source, attributing widening to a lack of buying or maybe some selling.

There is some inventory "weighing on dealers," he said.

Supply coupled with a rally resulted in some rate-based profit-taking in agencies last week, with dealers holding paper.

"Agencies may be trying to find their levels," the source said.

The agency curve was influenced on Monday by rising Treasuries on the front and back ends, with no real change in "the belly of the curve," the source said.

The yield on the benchmark 10-year note fell 3 basis points to 2.48%. The yield on the 30-year bond fell 1 bp to 3.71%, and the two-year note yield was unchanged at 0.4%, according to a market source.

On Tuesday, Fannie Mae is expected to announce new Benchmark Notes that had been talked about in the range of two to three years and $4 billion to $5 billion.

Economic data released

New orders for manufactured goods in August decreased $2.2 billion, or 0.5%, to $408.9 billion, the U.S. Census Bureau reported on Monday.

In July, new orders were up 0.5%. Excluding transportation, new orders increased 0.9%.

Shipments were down $2.5 billion, or 0.6%, at $415.1 billion in August following a July increase of 1.2%.

Following four consecutive monthly increases, unfilled orders decreased $100 million to $804.0 billion.

Inventories grew $700 million, or 0.1%, to $526.4 billion.

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