Goldman Sachs just priced their 3 ½ year $5billion FDIC guaranteed bond. The issue priced 200 basis points cheap to the 3 year Treasury. There is a lot of curve between November 2011 and June 2012. So a better comparison is the FNMA May 2012 issue and the spread there is about 10 basis points. The May 2012 issue trades Libor + 80 and this issue is Libor + 90.Agency spreads have screamed tighter this morning. Two year paper and three year paper is 20 basis points to 30 basis points tighter. Five year and ten year paper is 30 basis points to 40 basis points tighter.
There is very little liquidity and it is nearly impossible to find offerings. One trader suggested that the rally would continue for several days as there are many buyers and few sellers.
Swaps have gapped tighter also. Two year swap spreads have narrowed 13 ½ basis points to 93. Five year spreads have narrowed by 18 basis points to 81 ½. Ten year spreads are racing towards negativity, too, as the 13 ¼ basis points tightening there leaves them at 9 basis points. Thirty year spreads are narrower by 10 and are trading in the ether at NEGATIVE 44.
Mortgages are outperforming swaps by 7/32 but have surrendered the much larger gains achieved earlier when the outperformed swaps by 24/32.