Agency Update

February 11, 2019

The bond market rallied again last week and yields continued to move lower, albeit to a lesser degree than the week before.  The yield curve remains inverted between 1 and 7 years, with the spread between 1- and 5-year Treasuries now at -7 basis points, and Treasury yields have retreated to levels not seen since the beginning of the year.  Agency bullets mostly moved in line with Treasuries.  Bullet yields for 3- and 5-year maturities fell by approximately 3 to 6 basis points to 2.51% and 2.59%, respectively.

Agency bullet spreads widened out by approximately 2 basis point for 3-year maturities, while spreads on other terms were unchanged.  Bullets in the 5-year part of the curve are still trading approximately 14 basis points over Treasuries, the tightest spreads since the end of November, but still at wider margins than they had been trading for most of the last two years.  Callable bonds mostly widened out after tightening for several weeks.

The following table reflects last week’s total issuance and call activity across GSE issuers:

Last week Fannie Mae issued a 5-year Benchmark note that priced at +11.  This week the Federal Home Loan Bank has an issuance slot on Wednesday.  Today the Federal Home Loan Bank is expected to offer $2-3 billion in 3- and 9-month SOFR-indexed floating rate notes.  Next week Freddie Mac has its next issuance date on Wednesday, February 20th.

Daniel Anderson

Senior Vice President, Investment Strategies

Vining Sparks IBG, LP

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