Agency spreads tighten; Freddie prices $4.5 billion Reference Notes, deal tightens in trading

By Lisa Kerner

Charlotte, N.C., April 23 - Agency spreads were tighter by 1 to 2 basis points at the end of the day on Thursday, said a trader who has noticed a "dramatic tightening" of the five-year sector over the past several days.

In the past three days, the five-year part of the curve has tightened "8 to 9 bps," said the trader. He attributed the tightening in part to interest in the latest Freddie Mac issue.

Freddie Mac priced its $4.5 billion of new five-year Reference Notes security at 65 bps over Treasuries.

In aftermarket activity it moved tighter, ending the day at 62.5 bps bid, according to the trader.

The 2.5% notes priced at 99.781 to yield 2.547% on Thursday.

Pricing had been delayed by one day due to the unexpected death of the agency's senior vice president and acting chief financial officer David Kellerman.

Overall, the trader was "kind of surprised" by the size of the issue because "it didn't seem like that tight of a book."

The trader believed Freddie Mac may have had the issue at $5 billion but then people dropped out. Putting the issue at $4.5 billion may have been done "to create price tension," said the trader.

Freddie Mac offered the five-year Reference Notes via a syndicate of dealers led by Deutsche Bank Securities, Inc., Goldman Sachs Group and Morgan Stanley & Co. Inc.

According to Freddie Mac, it has issued a total of $30 billion of Reference Notes securities during 2009 and has approximately $258 billion in Reference Notes and Reference Bonds securities outstanding.

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