Agency spreads widen slightly; Fannie Mae to price new three-year Benchmark Notes on Wednesday

By Lisa Kerner

Charlotte, N.C., May 18 - Agency spreads widened a basis point on a relatively quiet Tuesday, a trader said.

The two-year sector moved out 2.5 bps to 3 bps, the five-year widened 2.5 bps to 3.5 bps, and the 10-year was wider by 2 bps to 3 bps, according to another source, who attributed the movement to the plunging euro.

Also on Tuesday, Fannie Mae announced a new issue of Benchmark Notes due June 26, 2013.

Price talk had the issue at $2 billion with an expected spread of between 23 bps and 27 bps over three-year Treasuries, according to market sources.

One source expects Fannie Mae's new issue to price at 25 bps on Wednesday, while another said it was at 27 bps at the end of the day on Tuesday.

Demand for the issue is expected to be strong.

Fannie Mae's new issue surprised one source who said he expected the agency to reopen a two- or three-year instead.

The notes will settle on Friday.

Barclays Capital Inc., Deutsche Bank Securities Inc. and J.P. Morgan & Co. are the joint lead managers.

Co-managers include Alamo Capital, Citigroup Global Markets Inc., Goldman, Sachs & Co., Guzman & Co., Jefferies & Co., Inc. and UBS Securities LLC.

International Bank for Reconstruction and Development priced $4.5 billion in 2.375% five-year global bonds on Tuesday to yield Treasuries plus 32.45 bps, according to a source away from the sale.

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