Agency spreads slightly tighter; Fannie may pass Thursday; investors await Fed meeting results

By Lisa Kerner

Charlotte, N.C., Sept. 20 - Agency spreads were unchanged to "marginally tighter" on Tuesday, a trader said, following some temporary widening the prior day thanks to Fannie Mae's reopening of a $1 billion five-year benchmark note.

The trader said he "speculates" that Fannie Mae will take a pass on Thursday when it has another opportunity on the calendar to announce a benchmark offering.

"There is still a big demand for agencies," said the trader, with a lot of new issuance and securities being called.

Tuesday was quiet as investors waited for the results of the Federal Open Market Committee's two-day meeting that began Tuesday. An announcement is expected immediately following the meeting's conclusion on Wednesday.

According to the trader, the market expects to hear news of "Operation Twist," where the Federal Reserve will sell short-end securities and buy longer-dated securities in a bid to drive down interest rates and bend the yield curve. More specifically, the Fed would replace short-term Treasuries with long-term bonds.

The FOMC is not scheduled to meet again until November.

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