US agency note and mortgage bond spreads ended mixed on Friday, as prices firmed with Treasuries after the government reported November had the slowest new home sales in more than 12 years.
Fannie Mae and Freddie Mac note yields shaved as much as 2.5 basis points over Treasuries, with the bid on 10-year Fannie Mae notes about 1 basis points narrower than last Friday.
Shorter maturities kept outperforming, a reflection of improved confidence about financial system liquidity.
In one example, Freddie Mac 2-year notes sold in a December 14 reopening at a 57 basis-point spread were quoted at a 53 basis-point spread on Friday, also about 4 basis points less than a week ago.
Trading was sparse, but the recent trend in spreads has been tighter in sync with swaps. Federal Reserve figures late Thursday showed an ongoing penchant for agency-related debt from official foreign investors.
Overseas central bank holdings of US agency and mortgage-backed debt shot up by $5.7 billion in the week ending Wednesday, piling on to the more than $17 billion in purchases made the prior two weeks. Demand for these securities from foreign central banks has been unrelenting this year, rising from just under $600 billion at the end of last year.
Agency mortgage-backed securities prices on Friday lagged Treasuries gains, rising 5/32 to 22/32. The 5-1/2 percent 30-year issues advanced 17/32 on the day. Unlike agency debentures, which face relatively contained issuance again next year even if Fannie Mae and Freddie Mac portfolio caps are lifted, a record volume of agency mortgage bond supply is imminent and is restraining the upside potential in that sector, most analysts agree. Benchmark 10-year Treasuries increased 29/32 to yield 4.09 percent, off intraday highs but firmer on the weak home sales figures.
Fannie Mae 5-1/2 percent 30-year securities had a bond equivalent yield of 5.579 percent, a 1.490 percentage point premium over Treasuries. That yield pick-up was just below 1.499 late on Thursday and up from 1.484 a week ago.
In the final trading day of the year, a holiday-shortened session on Monday, the markets get existing home sales figures from the National Association of Realtors. Sales are expected to have stayed at October's 4.97 million annual rate, which was the lowest sine the trade group started tracking single-family and condo sales jointly in 1999.