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Agency spreads expand with possible Freddie deal, but 'spread dynamics' positive, trader says
By Kenneth Lim
Boston, July 13 - Agency spreads widened slightly on Monday as the market looks ahead to a possible supply announcement from Freddie Mac, an agency trader said.
Two- and three-year spreads were 1 to 2 basis points wider on the day, while five-years were out just a touch on light volumes, the trader said.
"In general it's been fairly quiet," the trader said. "The market's looking for some possible supply announcement out of Freddie Mac, which is scheduled to announce a potential Reference Note issuance this week."
Freddie Mac's announcement is scheduled for Wednesday.
The markets were mostly quiet, although "spread dynamics are generally positive right now" with the Fed's continuing open-market buying of agency securities and recent richening of Treasuries, the trader added.
"We saw a bit of widening in spreads last week just on the strength of the underlying Treasuries rally," the trader said. "Rate buyers are moving to the sidelines for the moment because of the rally in Treasuries, and they're looking more at buying spreads."
CIT on the periphery
The market was also keeping speculation about CIT Group Inc.'s survival on the radar, the trader said. New York-based CIT, a commercial lender, is widely seen to be struggling to meet its short-term capital requirements, and the markets are nervous about the spillover effects if the company is forced to file for bankruptcy protection.
"There's been a lot of announcements in other news with CIT, with the bond markets and the stock markets sort of focused on that as well," the trader said. "We're also looking at that."
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