August 7, 2017
Agency yields continued to hold steady for the short end and moved slightly lower in the 5- and 10-year maturities. On the week, two-year Agency yields increased 1 bp to 1.42%, 5-year Agency yields decreased 2 bps to 1.91%, and yields on 10-year Agencies fell by 3 bps to 2.61%.
Yield spreads for Agency bullets compared to Treasuries continued to be relatively stable and remain tight on a historical basis due to low supply. Yield spreads for callable Agencies were unchanged last week. Callable Agency spreads versus bullets were also unchanged with the exception of callable Agencies, with 2-year finals which fell 1bp.
Discount callable issues offered in the secondary continue to occasionally trade at very favorable yield levels and OAS relative to new par issues and also to bullets.
Agency redemptions consisted of 24 issues called totaling $2.2 billion with FHLB’s call volume accounting for $700 mm.
The Federal Home Loan Bank issued its largest amount YTD with $59.3 billion in July. Prior, the largest monthly issuance had been $49.2 billion in May. Simple floaters represented the majority of issuance with $51.1 billion.
The highlight of the Agency calendar in the week ahead will be Freddie Mac’s announcement on Wednesday of any plans to sell reference notes. Fannie Mae will have a benchmark note announcement on August 16th and Federal Home Loan Bank will have a global bond announcement on August 23rd.
Last week investors largely focused on the following:
- Swaps with accounts coming out the front end and extending out the curve to the 4- to 7-year range
- Strong demand for two-year bullets
Ricky Brillard, CPA
Vining Sparks, IBG