Agency Market

March 26th, 2008 2:01 pm | by John Jansen |

 Agency paper is about 2 basis points tighter today as there has been robust buying from foreign based money managers as well as foreign central banks.There was active outright buying and some participants reported sellers of supranational paper moving into the agency market.

There has been a genuine change of heart in this market and a renewed confidence in the agencies and their long term prospects. By way of example ,the 10 year Freddie Mac at its worst levels traded 108 basis points cheap to the 10 year Treasury and 42 basis points cheap to swaps. The issue is currently 71 basis points cheap to the Treasury benchmark and has closed the gap to trade swaps plus 11 basis points. That is a dramatic improvement is a very short span of time.

Traders with whom I spoke today thought that street inventory was light and it was difficult to source bonds.

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