Market participants predict Fannie Mae spreads could grind tighter as the mortgage company resumes buying back its debentures due to its shrinking portfolio growth and lower funding needs. Last week Fannie Mae bought back $2 billion of its debt, the first repurchases since December of 2003, fueling the expectations.
The buyback, coupled with the easing of recent selling pressures due to Asian investors cleaning up their books in advance of the Chinese New Year, caused spreads across the curve to tighten versus Treasuries by two to three basis points last Monday and Tuesday. William Prophet, interest-rate strategist at UBS, noted future buybacks could lead spreads tighter and could affect liquidity of the repurchased issues.
While market participants are reluctant to speculate how much Fannie Mae might buy back this year, one trader said he expects the government-sponsored enterprise to buy back five-year paper and out, while concentrating new sales in two- and three-year bonds.
Jason Lobo, Fannie Mae spokesman, said the repurchasing was part of the company managing its asset-and-liability mix. He declined to discuss any future repurchases.
