Agency Update

April 22, 2019

Treasuries traded in a fairly tight range during the holiday-shortened week and yields ended the abbreviated trading day on Thursday largely unchanged from the prior week.  The spread between 1- and 5-year Treasuries is still negative, but the 2s-to-10s slope has steepened marginally and now stands at 18 basis points.  Both agency bullets and callables mostly moved in line with Treasuries.  Yields for 3- and 5-year bullets fell by 1-2 basis points and are now trading at 2.40% and 2.44%, respectively.

Spreads on bullets are basically at the tightest levels in 6 months, near the narrow margins last seen in October.  Callable agency spreads were largely unchanged on the week and are trading at relatively tight levels versus where they were at the beginning of the year.  The agency curve still maintains its steepness, unlike Treasuries, but there is little to find particularly attractive in bullets right now without extending out further on the curve.  For example, bullet spreads over government debt do not reach double digits until approximately 6-year maturities, but if investors can extend to 7-year maturities, the spread increases to more than 20 basis points.

The below table reflects last week’s total issuance and call activity across the primary GSE issuers.  Last week’s call activity declined again to $1.7 billion, and the amount of agency issuance remained elevated at $5.1 billion.  Since the beginning of March, the major agency issuers have called $26.3 billion in securities and have issued $38.0 billion total.

Last Wednesday the Federal Home Loan Bank passed on its Global issuance slot and has not had a major offering since February.  This Wednesday Freddie Mac has its next announcement date to issue Reference notes.  Next Monday is Fannie Mae’s next issuance date, and next Thursday Freddie Mac has another issuance slot.

Daniel Anderson

Senior Vice President, Investment Strategies

Vining Sparks IBG, LP

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