Agency spreads narrow, but volumes remain muted; Fannie Mae could issue new notes Thursday

By Kenneth Lim

Boston, Feb. 22 - Agency spreads narrowed slightly on Monday, although volumes were low ahead of expected supply later in the week.

Bullet spreads closed the day a tad tighter, continuing the momentum from before the weekend.

"If anything spreads were a little better bid, especially at the short end," an agency trader said. "But there's very, very little volume."

Callable issuance was slightly more robust, although when compared to the end of the previous week, volumes were also down.

"There's a little more activity in callables, but not as much action as the end of last week," the trader said. "We're still fairly active in terms of the structures, but not in terms of size."

The trader said the lack of activity could have been simply the market being slow to come back after the weekend because other credit markets were also quiet.

"It's just a Monday," the trader said. "Even the Treasury market hasn't moved much, probably just a few ticks."

Late start

The trader reckoned that "things would pick right back up" on Tuesday.

Another trader said the lackluster volumes reflected a lack of market-moving events.

"Earlier we had some excitement because of the Greece issue, but that's mostly water under the bridge at this point," the trader said. "There's really nothing this week except for Fannie Mae on Thursday.

"When you're in a rangebound market like we are, when there's nothing going on it's very hard to interest investors in trading. There's just not that much you can do."

Fannie Mae on the horizon

The highlight of the week will probably be Fannie Mae's Benchmark Notes announcement on Thursday, the second trader said.

Fannie Mae passed on its first calendar announcement for February and will probably issue something this week.

"I think they'll probably do something this round, probably two- to five-years," the trader said. "Yields have fallen a little, so I think it's not a bad time for them to be issuing, although if they skip this one again they'll have another chance on March 10, which is just two weeks away, so it's entirely possible that they skip again."

A Fannie Mae deal will probably do well, the trader added.

"The market's starving for some new issuance right now," the trader said. "Just looking at what [Federal Home Loan Banks] did last week, that one did really well, and I would expect the same for Fannie Mae."

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