December 11, 2017
Agency yields increased across the curve in response to better-than-expected jobs numbers and with the expectation the Fed will raise rates this week. On the week, two-year Agency yields increased 2 bps to 1.85%, 5-year Agency yields improved 3 bps to 2.21%, and yields on 10-year Agencies were higher by 2 bps to 2.72%.
Yield spreads for Agency bullets and callables compared to Treasuries were unchanged for the week. In the near term, expect agency note spreads to move in recent ranges, although 3-year spreads could tighten this week on the roll to a new 3-year Treasury note. During the past week, we observed continued demand for a variety of callable structures in the 5-year part of the curve. As shown on the chart below, the 2, 3, and 5-year part of the agency curve is at a 12-month high in terms of yield.
The following table reflects last week’s total issuance and call activity across GSE issuers:
|Federal Farm Credit Banks||175,000,000||–|
|Federal Home Loan Banks||279,000,000||130,000,000|
|Federal Home Loan Mortgage Corp||500,000,000||25,000,000|
|Federal National Mortgage Association||–||–|
|Federal Agricultural Mortgage Corp||11,000,000||–|
Last week, Federal Home Loan Bank passed on its global bond issuance slot and Freddie Mac forewent issuing reference notes on its announcement date. The highlight of the agency coupon calendar in the upcoming week will be Freddie Mac’s announcement on Thursday of any plans to sell reference notes. Fannie Mae wraps up GSE issuance for the year on December 20th, its last benchmark note supply slot of 2017.
Ricky Brillard, CPA
Vining Sparks, IBG