April 17, 2017
Agency Market Weekly Comments
A flight to quality sent Agency yields lower across the curve, with the most movement occurring in longer-term maturities (5+ years). Two-year Agency yields decreased by 9 bps to 1.30%, 5-year Agency yields fell 16 bps to 1.88%, and yields on 10-year Agencies were lower by 15 bps to 2.63%. The 5-year Agency yield has declined 34 bps from the high of 2.22% reached in mid-March, but remains higher than the average over the past year (1.63%) and 12-month low (1.13%).
Yield spreads for Agency bullets compared to Treasuries were unchanged for the week. Yield spreads for Agency callables tightened 1 to 8 bps, depending on the structure.
Call activity and new issuance was relatively slow last week. The Agencies called a total of $620mm in paper and issued approximately $2bn. However, investors are monitoring call reports and the market closely due to the downward trend in interest rates and flattening yield curve, which could increase call activity for certain structures
Michael S. Erhardt, CPA
Senior Vice President
Vining Sparks, IBG