Agency Agony

"The agency market continues to be a vale of tears in search of buyers. Agency spreads are wider today despite improvement in other spread markets and improvement in funding markets. FNMA had scheduled an announcement of a benchmark note but decided to pass on the opportunity. That was a magnanimous (great Latin roots for that word) gesture by FNMA but the market was and is non plussed. Spreads in the 2 year sector are 2 basis points wider to Treasuries and are being clubbed against swaps as 2 year swaps are in nearly 14 basis points. Two year agencies are now Libor + 41 basis points."