Agencies widen as Treasuries rally ahead of Bernanke comments; Freddie Mac supply eyed

By Kenneth Lim

Boston, April 26 - Agency spreads slipped out a little on Tuesday as Treasuries climbed on expectations of a dovish outcome of the Federal Open Market Committee's monthly meeting.

Bullet spreads closed slightly wider on light volumes as investors mostly stayed on the sidelines to await the conclusion of the Federal Reserve meeting.

"We are a bit weaker the last couple of sessions as Treasuries have rallied," said Michael Skinner, a trader at Wall Street Access. "Nobody's really paying attention to agencies. Everyone's paying attention to what's going on tomorrow afternoon."

The callable market was also sluggish amid the uncertainty and falling yield levels.

"Callables have been just as quiet," Skinner said. "I did see more issuance on the tape today than I expected, and a couple had some success, but overall still quiet."

A slight uptick in volatility in the middle of the day led to a small flurry of activity, but otherwise the markets were quiet.

"I can't tell you it's on great volumes," Skinner said.

Yields fall

Yield levels dropped on Tuesday on expectations that Fed chairman Ben Bernanke would make the case for continued accommodative monetary policies after the FOMC's meeting.

Bernanke is scheduled to give a press conference Wednesday afternoon, the first time the Fed chairman will take part in such an event following an FOMC meeting.

"I think you have some position squaring here," Skinner said. "A lot of people were short, and they're squaring their positions before Bernanke and company."

Agency spreads are wide of recent tights by about 2 to 3 basis points across the yield curve, Skinner said.

"I have seen some selling or some accounts looking to get rid of some stuff, mostly in the short end," he said.

He was hoping that activity would improve after the Fed's meeting and the Bernanke press conference on Wednesday.

"I'm hoping it picks up," he said.

Freddie Mac ahead

Agency traders were also hoping for some supply out of Freddie Mac on Thursday to give the market a bit of a liquidity boost.

But Skinner did not have his hopes up for a big offering.

"They don't need a whole lot of funding," he said. "It could be something in the front end or a reopening or a pass, but I'm not expecting too much."

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