July 31st, 2008 3:00 pm | by John Jansen |

Agency spreads are wider by about 2 basis points across the curve. It was a lethargic trading session as investors anticipate the employment report tomorrow.The Federal Home Loan priced $3billlion of a 5 year note today at T+82. One trader commented that while the pricing was fair the deal struggled across the finish line. It trades that way as it is now available at T+83.

Brad Setser in his blog had a link to a Reuters story of several days ago in which a Russian official states that Russia has cut its exposure to FNMA and Freddie Mac from $100 billion at the start of the year to about $50 billion currently.

It does not seem that such an strategy is widespread as it is not showing up in the spread market. What does appear to be happening is a shift of investor appeties along the curve for agency paper.

Just prior to July 4th and the outbreak of the conflagration which brought the hug from the cuddly Secretary of the Treasury 2 year sector agency paper was trading Libor less 30 basis points. That paper has since cheapened and it now trades Libor less 20.

However in the 5 year sector benchmark paper has moved from Libor +5 to Libor-15 and in the 10 year sector the Libor level has moved from +10 to flat.

So, cheaper paper for investors in the front end and richer paper in the belly of the curve.

The GSEs do nor appear to have a funding problem but they still have capital adequacy problems. Freddie Mac earnings are set for release on Wednesday and it will be instructive to observe the manner in which they address their long promised stock sale.

Maybe Hank will decide to buy the taxpayers a starter kit amount just to test his new powers. I am kidding ,of course , but think the earnings release will be an interesting crossroad.

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