Agencies widen on lackluster trading amid employment data aftermath, anticipated supply

By Kenneth Lim

Boston, June 6 - Agency spreads widened slightly on a quiet Monday as investors dealt with the aftershock of recent employment data and a busy week of supply ahead.

Bullet spreads eased out a touch to start the week, continuing the slight widening from before the weekend.

"It was really quiet," said Michael Skinner, an agency trader at Wall Street Access. "Spreads widened out a little."

The callable market also had a lackluster session.

"Not too many deals priced," Skinner said, noting a couple of retail deals.

Digesting the data

The low trading volumes on Monday were partly due to the typical summer slowdown. Volumes usually thin out on Mondays and Fridays during the summer months as many people take vacations.

"It's a typical summer Monday," Skinner said.

But the market was also trying to deal with the sharply disappointing employment situation report released on Friday. Yields fell on Friday as non-farm payrolls in May fell far short of Street estimates. The Labor Department also said that the unemployment rate ticked up during the month.

"The market's trying to digest the employment data," Skinner said. "In my experience it usually takes a couple of days for the market to figure out the next step."

Agency spreads have been widening as Treasury yields fall on weak economic numbers, but spreads could be landing in a support zone now. A key factor in keeping spreads from going much wider is the lack of supply in agencies, an ever-present theme throughout the year as the housing market remains weak and Fannie Mae and Freddie Mac try to trim their portfolios.

"The lack of supply is helping spreads," Skinner said.

Supply ahead

There was also some uncertainty on the yields front with Treasury supply over the next three days.

The Treasury is selling $66 billion of three-, 10- and 30-year debt Tuesday through Thursday.

"With the 10-year yield touching 2.94%, it will be interesting to see how the auction goes," Skinner said.

Agency supply could also be in the pipeline, with Federal Home Loan Banks scheduled for a Global Notes announcement on Wednesday. But expectations were not high for new agency securities.

There will be "probably something in the front end or a pass," Skinner said.

© 2015 Prospect News.
All content on this website is protected by copyright law in the U.S. and elsewhere. For the use of the person downloading only.
Redistribution and copying are prohibited by law without written permission in advance from Prospect News.
Redistribution or copying includes e-mailing, printing multiple copies or any other form of reproduction.