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Strategies & Market Trends : MDA - Market Direction Analysis -- Ignore unavailable to you. Want to Upgrade?

To: Les H who wrote (44412)	3/30/2000 1:22:00 PM
From: Benkea	Read Replies (1) \| Respond to of 99985

Thursday March 30, 1:17 pm Eastern Time Fear and widening in U.S. mortgage-backeds NEW YORK, March 30 (Reuters) - U.S. mortgage-backed securities (MBS) were trading but with extreme caution Thursday morning, with players trying to do business despite the turbulence of whipsawing spreads. ``Dealers are trading with caution,' said Art Frank, head of mortgage research at Nomura Securities International. ``What spread you get if you want to do $10 million is quite different than what you'll get if you want to do $100 million,' he said. Dealers are unwilling to provide liquidity at larger dollar amounts without charging a premium for the risks, Frank said. The market opened to extremely wide spreads that saw agency 10-year debt spreads at 115, and 10-year swaps at 129. As trade progressed those spreads came back in by about four basis points, or one basis point wider than Wednesday's close, according to Frank. Mortgage debt was about two basis points wider than Wednesday's close. But even though that is ``not significantly wider,' Frank said, the market remains volatile and flows of trade Thursday morning were light. ``It's hard to know what's following what,' Frank said. ``It's a fearful market.' The damage being done to mortgage debt, agencies and other spread product, however, has nothing to do with market fundemantals, said Ken Hackel, MBS analyst at Merrill Lynch. ``We think it's way overdone, and clearly not value-driven,' he said. ``Instead it's being driven by exogenous factors,' including fear of whether Washington will take a new attitude toward government-sponsored enterprises Fannie Mae and Freddie Mac. ``That makes for a difficult market environment.' Those concerns are giving a better bid to Government National Mortgage Association (Ginnie Mae) mortgage debt, which continue to outperform the conventionals, traders said. Agency debt was still being rocked Thursday morning by uncertainty about efforts to reform and downsize Fannie Mae and Freddie Mac, with some Wall Street analysts saying the political mood in Washington supports efforts to put a cap on the rapidly growing companies. Government debt was firmer early Thursday on a flight-to-quality bid away from agencies and on a slide in the technoloy-driven Nasdaq. The the Dow Jones industrial average (^DJI - news) rose by nearly 70 points after the open; the Nasdaq (^IXIC - news) was off 15 points, after an earlier 100 point drop. Meanwhile, a report from the Commerce Department Thursday morning that fourth quarter gross domestic product grew by 7.3 percent -- topping Wall Street expectations of a 7.0 percent rise -- had only a passing impact on Treasuries, which quickly recovered and continued to firm. The 10-year Treasury note gained 5/32 to 102-23/32, yielding 6.13 percent. The Treasury 30-year bond was up nearly 1/2 point at 104-10/32 to yield 5.94 percent. Among 30-year 8.0 percent mortgage-backed securities prices, Ginnie Mae MBS were unchanged at 100-12/32 to offer a bond equivalent yield of 7.991 percent. Freddie Mac and Fannie Mae MBA were off 1/32. Freddie Mac MBS were at 99-30/32 to offer a bond equivalent yield of 8.075 percent, while Fannie Mae MBS were at 99-25/32 to offer a bond equivalent yield of 8.061 percent. And within 7-1/2 percent mortgage-backeds, Ginnie Mae securities rose 4/32 to 98-13/32 to offer a bond equivalent yield of 7.838 percent. Freddie Mac MBS were gained 2/32 at 97-30/32 to offer bond equivalent yield of 7.933 percent. Also, Fannie Mae MBS were up 3/32 at 97-28/32 to offer a bond equivalent yield of 7.906 percent.