Agency bullets wider again; callables stay active; market hopes for Friday rally, trader says

By Kenneth Lim

Boston, Aug. 6 - Bullet agency spreads continued to expand on Thursday, while callables remained active, an agency trader said.

"Spreads have been pushing out a little bit, more directional, based on funding needs," the trader said. "Supply's been kind of slow."

In the callable sector, high volatility and the week's aggressive callable issuance by the agencies helped to keep activity robust.

"In callables it was a fairly active day today, considering that we have non-farm payrolls tomorrow," the trader said.

"We had $5.5 billion in callable issuance today, and this week it's been pretty much between [Federal Home Loan Banks] and Freddie Mac. Freddie Mac's been very active the past week. They did a 5/1 [five-year non-callable for one-year] yesterday, a 3/1 today. That sector seems to be very crowded right now."

The week in general has seen spreads widening so far mostly in line with swaps, the trader noted.

"We've seen spreads push out," the trader said. "We've seen them push out most of the week primarily on weaker eurodollars."

Interesting Friday

Friday could be interesting for agency investors with the Federal Reserve carrying out its weekly open-market purchases of agency securities, the trader said.

The Fed will be targeting the longer end of the yield curve, looking to buy paper due 2016, 2017, 2018, 2029, 2030, 2031 and 2032, according to the Fed.

"Tomorrow could be a very interesting day," the trader said. "If you took the risk down today in underwriting, and you're hedged right and the market rallies, you've got a lot of trades you could get done. Accounts could take some real bargain."

© 2015 Prospect News.
All content on this website is protected by copyright law in the U.S. and elsewhere. For the use of the person downloading only.
Redistribution and copying are prohibited by law without written permission in advance from Prospect News.
Redistribution or copying includes e-mailing, printing multiple copies or any other form of reproduction.