Agency Close

November 14th, 2008 3:47 pm | by John Jansen |

Agency spreads got clocked again today. Spreads are wider by 10 basis points on the 2year sector, 6 basis points in the 5 year sector and 10 basis points in the 10 year sector.Spreads began to crater earlier in the week when Mr Paulson changed his mind about buying troubled assets. One trader reckons that 2 year spreads are 25 basis points wider since that announcement. Five year spreads are about 20 basis points wider and 10 year spreads are about 30 basis points wider.

Treasury apparatchik Neil Kashkari (with the Owellian title Treasury Interim Assistant Secretary for Financial Stability which reminds me of the title of the flip side of the rock classic Satisfaction by the Rolling Stones which was Under assistant West Coast Promotion Man ) did not do agency spreads any favors today when he averred that agencies have something slightly less than the full faith and credit of the US. His boss engaged in similar rhetoric earlier in the week.

Additionally, I spoke with a research analyst whose domain is the GSEs and he noted that the GNMA 10 Q released with their earnings this week was rather harsh and conservative. In the forward looking section in listing the bad things which could happen suggested that losses might be so large that $100 billion fro Uncle Sam might not be quite a tidy enough sum to cover their problems.

They also suggested that it was within the realm of possibility that conservatorship might at some point morph into receivership.

So, not a happy week for the agonies.

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  1. 2 Responses to “Agency Close”

  2. By alex on Nov 14, 2008 | Reply

    Let’s get real here. What do you really think are the chances that the US Govt. will reneg on backing any product connected with Fannie and Freddie?
    In my opinion, The circumstances would be so dire that our financial system would be crumbling. Does anyone here really think this will happen? If you do then treasuries do not qualify as an investment either. I know the participants on this blog are knowledgeable. If you can talk me down from this position I’d appreciate. I really believe the mincing of words by Paulson and associates are doing more harm than good. They are unrealistic assumptions.

  3. By Bond newbie on Nov 15, 2008 | Reply

    I agree with Alex. The mincing of words here is why NO FINANCIAL that could have borrowed under the FDIC guarantee has done so yet. So I don’t understand these suppositions that agency debt is being sold/not bought because investors are flocking to financial paper from The Nine Chosen Banks. Bloomberg article this week suggests The Nine are ingrates, and think the FDIC guarantee isn’t good enough.

    That kind of talk should send folks back to agencies, or maybe even Treasuries.

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