U.S. agency spreads narrow sharply after Fed action

NEW YORK (Reuters) - U.S. agency debt yield premiums are sharply narrower early Friday after the Federal Reserve cut the primary discount rate by half a point to calm chaotic markets.

Yield spreads are anywhere from 3 to 7 basis points tighter, unwinding much of the steep widening posted on Thursday on escalating fears of worsening corporate credit quality and evaporating access to capital.

Fannie Mae 10-year notes due June 2017 are bid at 67 basis points over Treasuries, at least 3 basis points less than late Wednesday. The yield premium on this maturity had gapped out as far as to 77 basis points last session.