Agency spreads in two-year range stall; Freddie Mac prices $3.5 billion 1.125% Reference Notes

By Lisa Kerner

Charlotte, N.C., Oct. 20 - Agency spreads remained "extremely unchanged" in the two-year sector, said a source on Tuesday as Freddie Mac priced its new $3.5 billion 1.125% two-year Reference Notes.

According to Freddie Mac, it priced the issue at 26 basis points over two-year Treasuries, consistent with pre-deal talk on Monday.

The size of the issue was also in line with talk, with one trader reporting $3.5 billion booked by the end of the day on Monday.

Freddie Mac announced that it priced the notes, due Dec. 15, 2011, at 99.851 to yield 1.195%.

At the end of the day on Tuesday, Freddie Mac was trading at 25.5 bps, said Mark Noble, a trader with MF Global Ltd.

Three-quarters of Freddie Mac's new issue sold in North America, followed by Asia at 21% and Europe with 2%, according to an agency spokesperson.

Investment managers led the way for investors at 56%. They were followed by banks/central banks, which took 35%.

The notes were offered via a syndicate of dealers led by Goldman Sachs, Citigroup Global Markets Inc. and Morgan Stanley.

Feb buyback

Also on Tuesday, the Federal Reserve Bank of New York announced that it will buy agency debt with maturities ranging from July 2016 to July 2032 on Wednesday.

One trader said the Fed has recently bought back about 45% of the amount offered in similar deals but could not provide an estimated dollar figure for Wednesday's buyback.

The buyback announcement caused spreads in the long end to tighten, said the trader.

Michael Effron with Jefferies & Co., commenting on callables, said there was "a fair amount" of issuance on the day, with new deal volume totaling approaching $1 billion.

Callable spreads in general widened, said Effron, while a recent rally in Treasuries moved the secondary down slightly.

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