Agency spreads on the mend (2)

Since I last showed this chart, a week ago, FNMA spreads to Treasuries have improved by 10-20 bps. That's a sign that the market is increasingly confident that the U.S. government will stand behind its implied promise to guarantee the debt of Fannie and Freddie. This whole crisis began with widespread distrust of any and all counterparty risk, so it's very important that we see this kind of progress because it means the market is healing its wounds. There is still much progress to be made in other areas of the bond market, of course, notably with corporate and emerging market debt spreads. While credit spreads haven't narrowed of late, the remain significantly below the highs of a few months ago.