Three more bid lists entered the market last week, helping to feed investors' hunger for supply. The supply was quickly absorbed, bringing in spreads to give mortgages and agencies a rather strong performance for the week.
A 15-year moderately seasoned bid list entered the market, along with a large CMO bid list and a commercial mortgage-backed bid list for $250 million.
For the 15-year sector, a bid list and some other scattered selling of 15-year has cheapened up that product a little bit relative to 30-year, according to Art Frank, head of MBS research at Nomura Securities. "Some of the selling in 15-years is not necessarily all absorbed by the market," he said. "I think dealers bought some of that bid list and so it could stay wide for a week or two as that gets absorbed."
Frank recommends purchasing slight discount dwarf 7s in the near-term, as spreads will take about two to three months to tighten back in. "But I think that if you step up and buy some slight discount 15-year dwarf 7s, you're going to be pretty happy a couple months out."
Solid Fannie Mae Issuance
A $5.5 billion five-year benchmark issuance from Fannie Mae last Tuesday was also absorbed well by the market. With the five-year closing Monday afternoon at 83 basis points over Treasurys, the issuance priced at 82 over, and closed Tuesday at 81.5 over. By market close Thursday afternoon, the spreads had tightened in to 77.5 over. For the week, agency spreads came in 4.5 basis points, compared to two basis points for MBS.
"Spread product had a good week, with the agency market absorbing that supply real well and actually tightening several basis points after the $5.5 billion five-year was priced," Frank said.
Overall, mortgages fared well for the week, tightening in four basis points before giving back two on Thursday. Fannie Mae 7.5s were up seven ticks and 8s were up six ticks. "So we should have had 7.5s up about 10 ticks if we were to be on spread, so we had about a two basis point widening, but that still leaves us on the week two tighter," he added.
In what Frank called a "notable contrast to last summer," he noted that there seems to be sufficient cash on the sidelines to absorb the supply entering the market.
Countrywide For Sale?
It has been reported that Countrywide Credit Industries Inc. has hired Goldman Sachs Group Inc. to help find the company potential buyers. Countrywide is the largest publicly traded U.S. mortgage lenders, and one of the largest private-label MBS issuers.
At press time, there weren't any rumors around as to who might be interested in buying the company, though when employees got wind of the announcement, not many were surprised.
Countrywide has assets of $15.8 billion and a market value of $3.9 billion. The company is viewed as an attractive company from a consolidation standpoint according to market sources.