August 28, 2017
Agency yields were mixed on the week with modest increases on shorter-term maturities and small declines for longer-term maturities, resulting in a slightly flatter curve. Two-year Agency yields increased by 3 bps to 1.41%, 5-year Agency yields were unchanged at 1.85%, and yields on 10-year Agencies were lower by 3 bps to 2.52%.
For the fourth consecutive week, yield spreads between Agency bullets and Treasuries were unchanged. Callable Agency spreads versus bullets were also unchanged with the exception of 15-year finals, which widened 1bp.
The best value can still be found in auction paper maturing 5 years and out. These callable structures still compare favorably to bullets because of the enhanced relative value on a yield spread basis.
With traders and clients on vacation and people watching eclipses, US Agencies saw reduced volumes on Monday as the slowest Monday for dollars traded since 2010. With the Agencies collectively redeeming nearly $4 billion in paper, accounts will be flushed with cash this week.
Federal Home Loan Bank, as expected, passed on its global bond issuance slot. Federal Home Loan Bank has the next major supply slot with its global bond announcement on September 6th. It has passed its last 5 dates and 10 times year to date versus 7 times in all of 2016. Fannie Mae will have a benchmark note announcement on September 12th.
Last week, activity was focused on bullet Agencies inside of five years. There was also demand for 3-year sector callable Agencies.
Ricky Brillard, CPA
Vining Sparks, IBG