Agencies widen on renewed flight to quality as jobless claims disappoint; Greece eyed

By Kenneth Lim

Boston, June 23 - Agency spreads widened on Thursday as investors shed risk on persistent concerns about Greece's credit stability and another set of weak economic data.

"Today was a risk-off trade day," said Michael Skinner, agency trader at Wall Street Access.

Bullet spreads widened out by about 2 basis points across the yield curve with 10-year spreads hovering around 47 bps bid, 45 bps offered.

The callable market continued to see good interest, if only because new deals look attractive amid the volatility. Although some older structures have been getting hit, some of the newer deals are coming with relatively enticing coupons.

"The upside to volatility is it sometimes means cheaper callable deals being printed," Skinner said. "Guys have been able to achieve the coupons from a couple of days ago."

Jobless claims take toll

Yields fell Thursday as investors appeared to shed risk, pushing spreads wider across the board.

Greece was on the top of investors' minds, with the market remaining concerned that the country may not be able to solve its debt problems.

"Greece is kind of in the headlines, and a lot of concern over there," Skinner said. There are "a lot of questions and not a lot of answers."

Reports emerged in the afternoon that Greece's government had agreed on further austerity measures, which would allow the country to receive further aid from the European Union and the International Monetary Fund. That eased some of the earlier concerns, but the level of fear remained high.

"I'm hearing about the deal, which is why we're off the lows in the stock market, but there are obviously still some worries," Skinner said.

Adding to the day's risk aversion was another set of weak employment numbers. The Labor Department on Thursday said jobless claims rose by 9,000 to 429,000 in the previous week, more than the 415,000 forecast on the Street.

Low volumes add volatility

The market is highly volatile at the moment, with every day's headlines causing sharp swings in yields and spreads, Skinner said.

"I feel like one day the world is rosy, the next day it's coming to an end," he said. "When it goes it's all one way, everybody going the same way."

The lack of trading volumes - attributed to a typical summer slump and to the uncertainties in the market - have only exacerbated the market's violent movements.

"The mark is pretty illiquid too, which makes it even more volatile," Skinner said. "If there was more liquidity, the moves wouldn't be as big."

The end of the quarter could bring some relief to a volume-starved market, but that probably won't happen until after the weekend.

"It'll come, but my guess is early next week," Skinner said.

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