The FNMA 5 roll seemed to fade into the background last week, as the market was in a waiting mode for late week Federal Reserve information on net dealer positions and bank holdings (see story p. 14). JPMorgan Securities analysts report that, given the size of the recent Mega pools, market participants are probably anticipating an increase in June bank holdings. If this isn't the case, "then it will be extremely probable that the Megas were nothing more than smoke and mirrors," JPMorgan analysts added. The squeeze could persist but it would become more and more difficult for the dealer to tolerate losses from not rolling the position. Another possibility, according to JPMorgan analysts, is that real money investors could have sold the FNMA 5s and then bought them back or swapped into Gold 5s. In this event, the squeeze in FNMA 5s "will continue to disrupt and distract" until possibly the end of the summer, according to JPMorgan analysts.
In the June monthly summaries, Fannie Mae reported a total of $25 billion 5% Megas and Freddie Mac reported a total of $20 billion 5% Giants. For the year there has been $130 billion in Gold and Mega 5s, according to JPMorgan. In addition, analysts note that the Mega production appears to exceed the float in the combined 2004 and 2005 cohorts.