Agency Agony
October 20th, 2008 11:20 am | by John Jansen |The agency market continues to be a vale of tears in search of buyers. Agency spreads are wider today despite improvement in other spread markets and improvement in funding markets. FNMA had scheduled an announcement of a benchmark note but decided to pass on the opportunity. That was a magnanimous (great Latin roots for that word) gesture by FNMA but the market was and is non plussed. Spreads in the 2 year sector are 2 basis points wider to Treasuries and are being clubbed against swaps as 2 year swaps are in nearly 14 basis points. Two year agencies are now Libor + 41 basis points.
Five year agencies are 8 basis points wider to Treasury debt and about 15 wider to swaps at Libor +41, also.
Ten year paper is 4 basis points wider to Treasuries and trades Libor + 55.
One trader said that the competition from the FDIC guarantee has been a real wet blanket for the entire sector and there is no active marginal buyer. So spreads can worsen from these levels and there is no rush to pick a bottom.
4 Responses to “Agency Agony”
By Don the libertarian Democrat on Oct 20, 2008 | Reply
“One trader said that the competition from the FDIC guarantee has been a real wet blanket for the entire sector and there is no active marginal buyer. So spreads can worsen from these levels and there is no rush to pick a bottom.”
Isn’t this one more example of how government guarantees, either explicit or implicit, effect the markets.
By Mario on Oct 20, 2008 | Reply
Hi,
what exactly is that “agency market”? Google isn’t really helpful on that one…
Thanks! – Mario
By John Jansen on Oct 20, 2008 | Reply
agency market is the market for FNMA and Freddie MAC bonds. It would also include Home Loan Bonds as well as FFCB paper.
Principally it is FNMA and Freddie Mac
By Amicus on Oct 20, 2008 | Reply
anyone have an idea of how much agency paper is ‘tied up’ hedging positions that may get lifted, shortly, under the Paulson buy-up plan?