Freddie Mac (FRE) is expected to launch $6 billion of three-year reference notes Tuesday.

The deal, which was announced Monday, saw its order book balloon to $12 billion mostly on demand from domestic investors.

The tightening of credit spreads helped firm up the price talk on the deal to 47.5 basis points from 49 basis points over comparable Treasury yields.

Some market participants say they saw a surge in demand for this issue on talk that Freddie may cancel its scheduled sale of another benchmark note Thursday. The mortgage company, however, said it officially hasn't made an announcement yet on that.

Meanwhile, risk premiums on most agency securities tightened Tuesday morning.

The existing Freddie three-year note, 2.125% due 2012, was trading at 1.7 basis points tighter at 33/30, according to Tradeweb data.

-By Prabha Natarajan, Dow Jones Newswires, 201-938-5071; prabha.natarajan@dowjones.com