Mortgages/Agencies – Spreads Widen on Deepening Subprime Fallout

U.S. agency and mortgage debt prices firmed but lagged Treasury market gains on Monday on widening subprime market worries that fueled demand for safer assets.

Agency and MBS spreads expanded as Treasuries rallied on new lows in the benchmark ABX index, used by investors to hedge subprime mortgage risks.

Investors are skittish even in the safer spreads products, despite two days of narrowing at the end of last week when some accounts bought at cheapened levels.

“We’re really staying on the very defensive side,” said Lance Pan, director of credit research at Capital Advisors Group in Newton, Massachusetts.