Benchmark agency spreads are about a basis point wider today. The more interesting agency story was the action in the discount note market, which is generally a staid backwater.As one trader described events to me there has been a bit of a perfect storm in that market this week. The shorter week has also compressed the auction schedule and left the street bidding on an inordinate amount of paper in a short time frame.
Repo financing levels have been at onerous levels this week (from the vantage point of the street) and have sent some clients scurrying to that market. The street has bid on paper and made very few sales.
This week also marks quarter end for Goldman, Lehman and Morgan Stanley. That would generally entail balance sheet constraints and would limit the ability of those firms to participate in the auction process.
So, today the lack of interest from customers resulted in three month paper spilling 12 basis points after the auction. The auction printed at 2.25 percent and traded as cheap as 2.37 percen