Agency Paper

April 30th, 2009 2:15 pm | by John Jansen |

Agency spreads are mixed today. Two year spreads are a basis point wider. Five year spreads are actually 8 basis points tighter and 10 year spreads are 4 basis points narrower this day.

The Federal Reserve announced that it will intervene in the free market tomorrow and buy agency securities which mature between May 2013 and October 2015.

One trader I spoke with noted that the central bank has purchased $ 64 billion of  GSE paper thus far. That is an average of about $ 12 billion per month since they began the process.

That leaves them with a need to buy $136 billion over the next  8 months. That would represent an increase of nearly 50 percent from current levels.

Spreads have ratcheted in rather dramatically already. The 2year agency in early 2007 (before the world changed) traded at T+ 20. At the darkest hour of the crisis that spread reached 200 basis points. That spread has come nearly full circle and is now about 37 basis points.

I think the point is that with the Fed having taken out much of the availablle supply already, appreciable spread widening is unlikely as the Desk still has quite an endeavor ahead of it.

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