Agency Update

February 18, 2020

Coronavirus again dominated headlines last week but Treasury yields mostly held steady, rising by 1 to 3 basis points for maturities of 2 to 10 years.  The pickup in yields is largely being erased this morning as the market is up marginally to begin the holiday-shortened week.  The yield curve remains inverted as the market continues to price in at least one Fed rate cut this year.  Agency bullets resumed their recent widening trend.

Agency bullets continued to widen last week and are now trading at much more palatable yields compared to how they were trading at the beginning of the year.  Bullet spreads across the curve are largely on top of the 12-month average but were within striking distance of all-time tight spreads at the beginning of the year.  Callable agencies were mostly unchanged but widened somewhat on the longer end of the curve.  For investors looking to get to a 2.0% yield, less structured 6-year callables can fit the bill.

The following table reflects last week’s total issuance and call activity across the primary GSE issuers.  Total issuance was basically flat last week at over $9 billion, and call volume increased to $7.55 billion.  Callable owners can likely continue to expect elevated call volume in their higher-coupon issues over the near term.

Freddie Mac announced a $3 billion 5-year Reference note last week, its first Reference issue since June 2018.  The deal priced at +8.  The FHLB has its next issuance slot this Wednesday, February 19th.  Fannie Mae has an issuance date next Tuesday, February 25th.

Daniel Anderson

Senior Vice President, Investment Strategies

Vining Sparks IBG, LP

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