Agency Market
March 27th, 2009 2:34 pm | by John Jansen |It was a very quiet day in the agency market today. There was very little involvement from clients.
Two year spreads are about a basis point snugger on the day. Five year spreads and 10 year spreads are somewhere between unchanged and a basis point wider.
Agency traders are occupying themselves discussing the timing of the next purchase of agencies by the Federal Reserve. Last week they announced on Friday that they would buy on Monday.
That led to a conversation about the Treasury buyback by the Desk. As I mentioned in an earlier post the Fed has concentrated its Treasury purchases in the on the run active issues. I noted that 75 percent of the Fed purchase today was the active 3 year note. Additionally, I just took note that they also bought nearly $ 1billion of thld 3 year not, the 1 3/8 February 2012. So about 90 percent of the Fed purchase was active issue or the recently active issue.
The agency trader with whom I spoke noted that there has ben a rush to issue FDIC paper before quarter end as a rule change will make issuance after that date somewhat more expensive. My trader source suspects that there is so much congestion in the sector from that FDIC issuance that the Fed just wanted to unclog the pipes to give dealers space for more issuance.
One last point. In the agency market the Fed purposely shuns the on the run issues. They only buy the off the runs which clog dealers shelves. With limited balance sheet dealers may be light on off the run Treasuries into quarter end.
It will be interesting to see if this purchase pattern resumes in purchases made after quarter end.
