Agency spreads tighten; Federal Reserve to buy more agency debt

By Lisa Kerner

Charlotte, N.C., March 18 - Agency spreads were tighter on Wednesday by 4 to 10 basis points, depending on where you looked on the curve, according to one trader.

Nothing significant impacted particular sectors, however, the strong rally in Treasuries put some pressure on spreads at the end of the day, the trader said.

The spreads may also have traded better due to Freddie Mac's announcement that it would not issue a Reference Notes security on Wednesday, which "left supply in the Street," said a source.

Freddie Mac may be waiting to here the outcome of the Federal Reserve Open Market Committee meeting on Wednesday, the source said.

"Maybe it's a good thing they waited because spreads snapped in," according to the source.

The FOMC announced Wednesday that the Federal Reserve will increase its purchases of agency debt this year by up to $100 billion to a total of up to $200 billion.

In addition, the Federal Reserve said it will purchase up to an additional $750 billion of agency mortgage-backed securities, bringing its total purchases of these securities to up to $1.25 trillion this year.

One source called the news "spread positive" and said it means "there's another large buyer out there."

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