Although the Federal Reserve Bank of New York has maintained throughout the auction of its Maiden Lane II portfolio that it is happy with the sales, the pricing dynamics in the market today might have been enough to make the government rethink its strategy, at least for the short term.

According to market sources, the New York Fed, on a conference call yesterday with dealers said it would offer no more bonds from the portfolio until June 6. That means that for the next two weeks the ML II asset sales will cease. One market trader said that the Fed plans one sale on June 6, and then none until after July 4.

At this revised timing of sales, one dealer projected the portfolio will not be completely unwound until the end of August. There has been market debate over whether the Fed should continue with its current strategy of releasing the assets through a series of sales as opposed to unloading the entire ML II portfolio as one package with the argument being that the current strategy has crowded the non-agency space and led to the wider spreads.

"The sales have definitely pushed spreads wider, so you can argue that it's been bad for the market," said Adam Murphy, president of Empirasign Strategies. "But on the good side, these sales have added structure and price discovery to the market — both welcome additions to market players who are not knee deep in these bonds every day.  I think you'll find those dealers/pm's long spread product before the ML II sales started hate it, and those under-allocated love it."

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