Agencies flat as Fannie, Treasury issuance looms; sector still offers value, manager says

By Kenneth Lim

Boston, July 4 - Agency securities remain attractive even though spreads have been tightening, fund managers said Monday as spreads ended the day mostly unchanged on weak volume.

"Things may be slightly wider today, but in terms of rounding error it's mostly unchanged," an agency trader said. "Markets have been on solid ground."

The market will be looking to see if Fannie Mae issues Benchmark Notes on Wednesday after skipping both announcement dates in June, the trader said. But any increase in demand will have to contend with the brisk rate of Treasury issuance that has been helping to keep spreads low, the trader said.

"There's a lot of Treasury issuance this week," the trader said.

Agencies still attractive

Martin Cassell, chief executive and chief investment officer of Chandler Asset Management, Inc., said that despite the sharp tightening of spreads over the past several months, agencies continue to offer value.

"We still see attractive value for agencies, for AAA rated paper," Cassell said. "I guess the main theme for Fannie Mae and Freddie Mac is with the explicit support from the government, maintaining positive net worth for them...It gives them a significant amount of comfort over the next one to two years."

"We're still buyers," he added. "Because in that very high quality sector, they still offer reasonable value."

Chandler senior vice president and portfolio manager Ted Piorkowski said the firm's accounts are focused more on shorter and intermediate term agencies. Longer-term paper is not as cheap.

"They haven't had any bullet issuance longer [than 10 years]," Piorkowski said. "So those have become harder to get ahold of and they've become richer."

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