Agency Update

April 15, 2019

The Treasury market sold off last week and yields across the curve reached levels not seen in nearly a month.  The yield curve remains slightly inverted from the 1-year Bill out to the 7-year Note, and the shape of the curve was little changed on the week.  Front end bullets mostly moved in line with Treasuries, while intermediate and longer term bullets tightened in versus government debt.  Yields for 3-year bullets increased 7 basis points to 2.42%, and 5-year bullets increased 6 basis points to 2.45%.

Agency bullet spreads for 5-year maturities and longer tightened in versus Treasuries, while spreads on bullets with shorter maturities were mostly unchanged.  Callable agencies continued to move tighter versus Treasuries.  As highlighted in the graphs below, bullets are trading at relatively tight spreads compared to the wider levels seen towards the end of 2018, but absolute yields are up from the end of March.  From a relative value standpoint, bullets in the 7-year part of the curve appear to be the most attractive, but even those spreads have tightened in a few basis points in recent weeks and are now in the lower 20s.

The below table reflects last week’s total issuance and call activity across the primary GSE issuers.  Last week’s call activity declined to $2.2 billion—rather, it was GSE issuance that was again elevated at nearly $5.3 billion.  The major agency issuers have called $24.6 billion in securities since the beginning of March.

Last week Fannie Mae announced a 3-year Benchmark that priced at +6.5 basis points, the tightest Benchmark issue since 2008.  This Wednesday is the next Global issuance slot for the Federal Home Loan Bank.  Next Wednesday is the upcoming announcement date for Freddie Mac.

Daniel Anderson

Senior Vice President, Investment Strategies

Vining Sparks IBG, LP

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