Although another congressional hearing on the government-sponsored enterprises took place last week (see story, page 2), markets reactions were generally positive. This marks a sharp contrast from the first hearing on the issue, which sent agency spreads to extreme wides.

"Agency spreads actually narrowed today and I think the hearings didn't seem to have much of an impact, but there were a couple committee members who said they didn't want to write up the bill this year, and that may have helped us tighten in a little bit," said Greg Rosenberg, a mortgage researcher for J.P. Morgan & Co.

Spreads between the 10-year Fannie Mae and the 10-year Treasury narrowed five basis points to 103 over, with Freddie Mac 10-year securities at about 107.5 basis points over at market close last Thursday.

Long-term product also faired well through the week, with 30-years outperforming by 1.78 ticks and 15-years by a little more than half a tick.

"Overall, there's been generally better retail interest in mortgage-backeds and we've sort of performed in line with other products on a curve-adjusted basis, with just about everything outperforming Treasurys in the spread world," Rosenberg added. "Mortgages have sort of held in with everything else, outperforming the 10-year part of the credit curve, and underperforming the five-year part of the curve. I think we've seen there is retail interest in spreads out there and it seems to be fairly evenly distributed between the different sectors."

As spreads tightened, demand for Ginnie Maes declined, which Rosenberg said is not unusual. "When spreads have widened Ginnie Maes have done better, and when spreads have tightened, Ginnie Maes have done worse, and they've been a little bit worse this week," he said. "It's not that surprising but I think investors who have piled into Ginnie Maes may be a little disappointed, but I don't think anybody's going to suffer that much over a couple ticks."

"Other than seeing retail buying and some originators selling, and probably the buying outweighing the selling by a margin. In order for the Street to intermediate that risk they've had to bring in spreads because there were too many buyers," Rosenberg added.

Freddie Mac Reopens 10-year Notes

Last Wednesday, Freddie Mac reopened a sale of its 10-year Reference Notes, due March 15, 2010 for $3 billion.

The notes were priced at 99.059 to yield 7.134%, or 109.5 basis points above the 6.5% on-the-run 10-year Treasury. Settlement on these notes will be June 21, at which there will be a total of $8 billion outstanding 10-year notes.

Lehman Brothers, Merrill Lynch and Morgan Stanley Dean Witter served as joint-lead managers for the transaction.

In other Freddie Mac news, the enterprise appointed David Glenn, president and chief operating officer, as vice chairman of the company. He has been with Freddie Mac since 1987.

CMBS Deal Offered

In addition to the PNC and Donaldson, Lufkin & Jenrette conduits which priced last week (see page 8), KeyCorp, Salomon Smith Barney and Bridger Commercial Funding may be bringing a $734 million deal to market this week, possibly Wednesday, June 21.

The deal, according to market sources, has eight public classes, backed by $818 million of real estate loans. Prudential Securities will lead the deal, with SSB and McDonald Investments Inc. serving as co-managers.

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