Agency spreads stay put in quiet session, better on the week

By Kenneth Lim

Boston, June 26 - Agency spreads were mostly unchanged on Friday in a typically quiet summer market.

One market source said spreads were actually slightly wider, but the movement was so slight that the market would consider them unchanged. But the week ended better than when it started. The trader noted that 10-year Benchmark Notes from Fannie Mae were marked at about 21 basis points over Treasuries at the end of Friday, compared to about 25 bps a week ago.

The week was dominated by tightening supplies, with the Federal Open Market Committee saying that it will maintain its buyback program of agency, mortgage and Treasury securities. Fannie Mae on Thursday also skipped it second and final Benchmark Notes announcement for June.

Michael S. Effron, who heads Jefferies & Co.'s U.S. government agency business, said he does not expect supply to improve much in the next few weeks.

Looking at the major issuers, Fannie Mae and Freddie Mac are trying to trim their balance sheets. The Federal Home Loan Bank is not seeing "a lot of growth" in loans from member institutions.

"I think most of the agencies have satisfied their funding needs going into quarter-end," he said. "I don't think we're going to see significant issuance going into the end of the quarter. I think supply's going to continue to be light for the next two to three weeks, if not the next month."

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