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Agency spreads contract ahead of Bernanke testimony; market expects small FHLB issuance
By Kenneth Lim
Boston, July 20 - Agency spreads tightened slightly nearer to the back end of the yield curve on Monday ahead of Federal Reserve chairman Ben Bernanke's testimony on the U.S. economy.
"It was quiet initially, and spreads were wider before they tightened, especially in the five-year sector," one trader said.
Two-, three- and 10-year spreads were unchanged on the day, while five-year spreads tightened by about 2 basis points. Spreads narrowed by about 1 bps in the 15- to 30-year sector.
Volume was light throughout the day.
"Flows were very, very small," the trader said.
The market is also looking toward Federal Home Loan Banks' expected announcement on its upcoming Global Notes issue on Tuesday. The agency is expected to issue two- to three-year securities, but the deal amount is likely to be small, the trader said.
"I would be surprised if they raised a lot, probably around $3 billion," the trader said.
Freddie Mac ends sub tender
Freddie Mac said Monday that it had received tenders for about $3.87 billion of its SUBS subordinated notes following a week-long offer period. The agency will pay about $4.02 billion in cash for the notes.
The spreads on the tendered notes are 100 bps for the $732.9 million of 5.875% SUBS due March 21, 2011; and 125 bps for each of the $1.21 billion 5.75% SUBS due June 27, 2016 and $1.93 billion 5% SUBS due Dec. 14, 2018.
Following the tender, Freddie has $513.802 million of the SUBS still outstanding.
Freddie Mac spokesman Michael Cosgrove said the tender offer was "a very successful deal."
"We were very pleasantly surprised," he said.
Cosgrove declined to say if Freddie Mac has any plans to take out the remaining SUBS that were not tendered.
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