Agency spreads widen slightly, supply of Treasuries expected

By Lisa Kerner

Charlotte, N.C., March 6 - Friday was a big day for agency medium-term notes, with Federal Home Loan Banks issuing several of the one-year variety in large size.

Spreads for the day in general were "ever so slightly wider" even in the short end, said one trader who didn't believe any "significant conclusions" could be drawn from the widening.

The same trader noted that spreads have been tight for the past three months as the Fed continues to buy agency debt as part of its efforts to stimulate the economy and support the financial system.

Another source attributed the slightly wider spreads possibly to "some profit taking."

Talk centered on supply for one source, who said the release of unemployment data coupled with a down stock market led to some digestion of the current supply of debt.

A substantial volume of new Treasuries is on tap for next week, including $34 billion of three-year notes on Tuesday, $18 billion of 10-year notes on Wednesday and $11 billion of long bonds on Thursday, the source noted.

One source was hearing that Treasuries could be "the next big bubble," citing the big returns investors have scored in recent months.

As a result, people may fear they will regret owning Treasuries in the first part of 2009 and "will sell anything," including Treasuries and agencies if they own them, said the source.

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