The Federal Reserve Bank of New York is expected to announce its next auction list from the Maiden Lane II portfolio on Monday.

The Fed who became regular seller in the market with its weekly ML II auction halted sales at the end of last month and said that the next sale was slated for June 6th. In the interim since the Fed halted its auction, pricing for non agency RMBS paper has continued to widen on the back of greater macroeconomic deterioration.

This week, for instance, Standard & Poor's/Case Shiller reported that housing prices were down yet again, falling for the eighth consecutive and reaching a new low for this housing recession. Consumer confidence came in 10% below expectations.

The average 30-year mortgage rate’s reported its seventh consecutive decline during the week ending June 2, which brought it to new lows not seen in Freddie Mac’s survey since the week ending Dec. 2. The 30-year rate dropped to 4.55% with an average of 0.6 of a point during the most recent week. It was 4.46% with an average of 0.8 of a point during the week ending Dec. 2. The NFP Payroll number and private sector payroll was equally disappointing and revised down last month .  

 "I think it is very safe to say that the recovery trade is not there just yet," said Jesse Litvak, managing director at Jefferies & Company , Inc. "With the housing sector still proving to be the center of the problem (at least domestically speaking), the ripple effects on the greater economy are keeping things from getting up of the mat."

Litvak added that while the Fed hasn't indicated what the auction list will look like, it's likely that most of the paper on offer will be subprime since it's what the Fed has mostly left to sell.

"This list could very well be the straw that breaks the camel's back," said Litvak. "Liquidity is very poor, there could be more supply in similar size that comes out in the coming months. As you all know I have long been an advocate of buying on dips, and this clearly has been a dip. June 30th is right around the corner and that could be a real motivating factor for getting some dealers to loosen the reins on bonds they have owned for a while. But if you look at how much NA RMBS has underperformed other areas of credit (and stocks as well), I think the case can be made for some real relative value trades in adding to our space and rotating out of other areas of fixed income."

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