By Lynn Adler
NEW YORK, April 22 (Reuters) - U.S. agency yield spreads
narrowed over firm Treasuries on short-covering on Thursday, as
players clung to hopes that the Federal Reserve is not poised
to raise interest rates immediately.
This outlook was supported by Federal Reserve Chairman Alan
Greenspan's comments on Wednesday suggesting inflation was not
enough of a force to push the Fed to swiftly boost interest
rates. Recent robust economic data had raised worries of a Fed
rate hike from 1958 lows as soon as June.
"Shorts are throwing in the towel and covering," said Andy
Brenner, head of institutional fixed income at Investec US.
"Greenspan's commentary in front of the Joint Economic
Committee (on Wednesday) shows the Fed will move interest rates
very slowly. The next major catalyst for a downward move is not
until the May 7 unemployment numbers."
Agency yield spreads over Treasuries narrowed by as much as
1.5 basis points on Thursday, after widening by 1 basis point
on average last session.
U.S. Treasury Secretary John Snow reiterated on Thursday
that that the agencies' continued growth could pose a threat to
the financial system.
"There are clear systemic risks in the continued growth of
entities this large relative to the whole financial system,"
Snow said in a question-and-answer session here at the annual
meeting of the Bond Market Association.
Snow's comments on the GSEs, Brenner said, had no market
effect.
Freddie Mac's Chief Executive Richard Syron, also speaking
at the BMA meeting, said he sees slim chance of a regulatory
overhaul this year for government-sponsored enterprises
Freddie, Fannie Mae and the Federal Home Loan Banks.
"The chance of a GSE bill this year is quite low," he said,
adding "this is next year's issue."
Freddie Mac also reported on Thursday that its investment
portfolio shrank for the fifth straight month because mortgage
purchases have been costly. "Right now the purchases aren't
attractive to us and do not meet our thresholds," said Heather
Sieber, a company spokeswoman.
As a result, the agencies have had less need to issue new
agency debt to finance portfolio purchases, supporting spreads
in the secondary market.
Benchmark 10-year Treasury notes <US10YT=RR> rose 13/32 in
price, reducing the yield to 4.38 percent from 4.43 percent
late on Wednesday. |
