Agency spreads widen on Freddie Mac's 'surprise' plans for two-year, 10-year Reference Notes

By Lisa Kerner

Charlotte, N.C., March 25 - Freddie Mac's announcement Wednesday that it will sell two-year and 10-year Reference Notes "caught people by surprise," according to a syndicate source.

Agency spreads were "within a hair of unchanged" on Wednesday until Freddie Mac released its plans, the source said.

In response to the news, spreads went wider.

But as the day progressed, spreads "ratcheted in" on a combination of buying and the market's realization that the 10-year tranche was going well, according to the source.

Based on the order book, the source said unofficially that the 10-year Freddie Mac will do at least $3 billion, which is consistent with what the agency has done historically.

Overall spreads were mixed on the day, with the 10-year sector still ending wider due to the Freddie Mac supply, despite the recovery, said the source.

Talk on the two-year Freddie Mac tranche is for a size of $5 billion. The issue is due April 26, 2011 and is offered by a syndicate of dealers headed by Banc of America Securities, Credit Suisse and RBS Greenwich Capital.

The 10-year Reference Notes, due March 27, 2019, will be offered via a syndicate of dealers headed by Barclays Capital, Inc., Citigroup Global Markets, Inc. and J.P. Morgan Chase.

Both issues are expected to price Thursday and settle Friday.

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