Agency Update

February 19, 2019

The Treasuries market had a roughly 10 basis point swing last week across the curve, with yields ending Friday roughly in the middle of the trading range and somewhat higher than the previous week.  The 2- to 5-year part of the curve is still inverted and the 2- to 10-year spread flattened to approximately 15 basis points.  Agency bullets mostly tightened in versus Treasuries.  Bullet yields for 3- and 5-year maturities increased by approximately 4 basis points to 2.55% and 2.62%, respectively.

Agency bullets richened by approximately 1 basis point for most terms, with 5-year bullets trading at the tightest level since November, but still at wider spreads than investors have seen for much of the last two years.  Callable bonds reverted to their recent tightening trend after widening slightly the week before.  For investors that can assume the call risk, less structured 3- and 5-year callables are trading just below the widest levels of the past couple of years, despite the decline in absolute yields.

The below table reflects last week’s total issuance and call activity across GSE issuers.  Total call volume last week, at more than $1.7 billion, was the highest in more than 6 months.

Last week the Federal Home Loan Bank announced the issuance of a 5-year Global note that priced at +11, its first Global deal since early December.  With the holiday-shortened week, there are no major issuance dates set for the primary GSE issuers.  Fannie Mae has its next issuance date next Tuesday, February 26th.

Daniel Anderson

Senior Vice President, Investment Strategies

Vining Sparks IBG, LP

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