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Agencies follow swaps, tighten up to 2 bps; Freddie Mac new issue 3 bps richer in trading
By Lisa Kerner
Charlotte, N.C., Oct. 6 - Agency spreads did well on Thursday, tightening about a half of a basis point to 2 bps on the day, one trader said.
With the European financial market seemingly more calm, and the macro theme of risk continuing, swaps tightened and agencies followed, he noted.
The two-year sector widened about 1 bps and the 2.5-year and out sector tightened by 2 bps, another source said.
According to the trader, the five-year sector had the best performance on the day due to curve action on either side and also due in part to the Fed's Operation Twist.
Because the five-year sector is the fulcrum point of the curve, it provides a sense of the richness or the cheapness of agencies, and agencies may have gotten a little too cheap, the trader said.
"It's a crap shoot right now," said the trader, citing the market's vulnerability to headline risk and lack of funding in agencies, especially in callables.
"There is a fair of amount of secondary paper out there," he added.
Freddie Mac's $4.5 billion of new 0.75% three-year Reference Notes that priced on Wednesday at a spread of 34.5 bps over Treasuries is 3 bps richer at 31.5 bps following a day and a half of trading, said the source.
He called sales of the issue "normal to very good."
Prior to pricing, talk on the new issue was at a spread of 34.5 bps over Treasuries.
Also on Thursday, the U.S. Dept. of Labor released its latest unemployment figures. Initial claims rose by 6,000 from the prior week, to 401,000 for the week ending Oct. 1.
The Bureau of Labor Statistics will release its all-important jobs report on Friday.
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