Agency Market
August 7th, 2008 3:31 pm | by John Jansen |Agency spreads are 3 basis points to 5 basis points wider today. Some dealers report that there were Japanese sellers of the agency product last night and that left the market with a soggy tone this morning.
The market remains very illiquid and a comparatively small amount of bonds has the ability to move spreads.
Tomorrow FNMA will releases its earnings and given the travesty which befell Freddie Mac, some participants have chose to sit on the sidelines until they can digest the essential elements of the FNMA release tomorrow.
I think that market participants wish to see the credit loss provisions at FCNMA and the rate at which they have changed from the preceding quarter. There is also a desire to have FNMAs thoughts on the housing crisis and when it might end. (If ever!)
Regarding agency spreads and their failure to tighten significantly following the passage of the GSE rescue bill, one analyst suggested that the carnage would have been significantly worse had the Treasury not stamped GSE debt with its imprimatur.
One of the problems which confronts investors and especially Asian investors, who I think it is fair to say had been the marginal buyers, is that there is quite a bit of ambiguity regarding the final resolution of the GSE issue. If I buy a 10 year FNMA bond, can I believe with relative certainty that the business will exist in a similar fashion nine years hence. Or will there be a different form and structure? Without clarity on that issue many foreign investors will continue to curtail purchases.
