BAA(6.17%)/one year constant maturity Treasury (4.42%) credit spread has shrunk from 183 last week to only 175. 3 year (4.74%)/3 month Libor (4.60%)interest rate swap is now only 14 bp.
federalreserve.gov
Basically the market has a huge bet on that rates are going lower, without any stress whatsoever on credit conditions and quality.
Most US agencies narrow, Fannie 5-year well placed
Wed Jan 18, 2006 03:43 PM ET
By Lynn Adler
NEW YORK, Jan 18 (Reuters) - U.S. agency yield spreads mostly narrowed over slightly weak Treasuries on Wednesday as new issuance drew broad-based global investment.
Fannie Mae's sale of $3 billion new five-year debt, its first benchmark note of the year, was priced in line with expectations and held those levels into late trading. The notes were about evenly distributed between U.S. and foreign investors.
The appetite of foreign investors is critical in the spread outlook for agencies, said Lance Pan, director of credit research at Capital Advisors Group in Newton, Mass.
Spreads could be pressured wider if the Chinese government diversifies away from dollar-denominated securities like agencies, or Euro-based debt yields rise relative to U.S. debt as the Federal Reserve stops raising interest rates, he said.
If the Fed pauses while the European Central Bank raises rates, "that would increase the attractiveness of Euro-dominated securities versus dollar-denominated securities," he added.
Fannie Mae's new notes yielded 35.5 basis points more than Treasuries, 1 basis point more than Fannie Mae's existing December 2010 notes. By late trading the new issue's spreads were 35.5 basis points bid and 35 basis points offered.
Spreads overall ended flat to about half a basis point tighter, while benchmark 10-year Treasuries (US10YT=RR: Quote, Profile, Research) slipped 2/32 to yield 4.34 percent.
Fannie Mae said it placed 51 percent of the new deal in the United States, 31 percent in Asia, 11 percent in Europe and 7 percent with other investors. Fund managers and central banks were the largest buyers, each taking 32 percent of the offering, Fannie Mae said.
The overseas buying was at the upper end of what was seen in each of the agency's four five-year offerings last year. |
