Agencies narrow on window-dressing bids; Fannie Mae skips issuance; FHLB plans buybacks

By Kenneth Lim

Boston, Dec. 20 - Agency spreads closed flat to slightly tighter on a slow Monday amid some straggling window-dressing trades heading into the year-end.

As expected, Fannie Mae decided to skip an issuance calendar spot, reinforcing the day's thin volumes.

Bullet spreads closed flat to about 1 basis point narrower versus Treasuries on Monday. Agencies also outperformed swaps on renewed concerns about the stability of Europe's debt.

The callable market was also quiet after investors mostly met their investment needs in the previous week's run-up in rates.

"It seems like everyone did their holiday bond shopping last week," an agency trader said. "Having said that, I think we came in this morning and in callable land everything that was printed last week has pretty much been cleaned up or at least is trading at a premium now."

Europe fuels buy interest

The market saw some bids Monday as unconfirmed rumors that France could lose its Aaa credit rating sparked some early flight-to-quality trading.

Investors who are behind on their year-end positions were also trying to get trades done Monday. The wild swings in the fixed income markets for most of December made it difficult for many traders to time their actions properly. But time is running out with the typical year-end shutdown just around the corner.

"It was more of a month-end or year-end window dressing," the trader said. "Some accounts realized they've got some stuff to do and they need to do it now."

But the agency market currently faces a lack of sellers for paper that is cheap, while the deeply discounted paper does not appeal to most investors.

"There's a bit of covering squeeze," the trader said.

Fannie Mae skips issuance

Fannie Mae said Monday that it would not use its calendar issuance slot to offer new Benchmark Notes.

The agency's issuance calendar reopens Jan. 12.

Fannie Mae's decision to skip the calendar slot was largely predicted by the market after Federal Home Loan Banks and Freddie Mac also passed on their issuance slots in the previous two weeks. The benchmark bullet issuance calendar will be quiet until the new year begins.

"It was not a surprise," the trader said. "To be perfectly honest, I glanced at the issuance calendar today and almost forgot they had an announcement today."

FHLB also said it will buy back up to $500 million of Global Notes. The targeted issues are its 5.25% notes due June 18, 2014, 5.375% notes due May 18, 2016 and 4.75% notes due Dec. 16, 2016.

The market mostly shrugged off that news, the trader said.

"I think it's more of an asset liability type management for the bank," the trader said. "For whatever reason, those are the issues they have chosen. It doesn't help things go wider by any means, but a couple of those issues trade tight anyway."

© 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.