February 26, 2018
The curve flattened on the week with yields on Agencies moving slightly higher on the short-end of the curve, and declining for maturities 5-years and longer. Two-year Agency yields moved higher by 5 bps to 2.27%, the 5-year Agency yield decreased 1 bp to 2.68%, and the yield on the 10-year Agency fell 5 bps to 3.17%.
Yield spreads for Agency bullets and callables compared to Treasuries were unchanged for the week with the exception of 10-year bullets, which experienced a modest tightening. Compared to two weeks ago, spreads for callable Agencies widened across the curve with larger movements occurring on structures with 5- to 10-year finals. Spreads with call tenors from 6 months to 1 year in these structures widened 8 to 13 bps. As seen below, Agency callables with 5- and 10-year finals remain appealing from a relative value perspective as current spreads compare favorably to their 12-month averages.
The following table reflects last week’s total issuance and call activity across GSE issuers:
|Federal Farm Credit Banks||453,000,000|
|Federal Home Loan Banks||222,000,000||30,000,000|
|Federal Home Loan Mortgage Corp||420,000,000||50,000,000|
|Federal National Mortgage Association|
|Federal Agricultural Mortgage Corp||26,000,000|
Last week, the Federal Home Loan Bank, passed on its global bond issuance slot. The highlight of the agency coupon calendar in the upcoming week will be Fannie Mae’s announcement on Tuesday of any plans to sell benchmark notes.
Notable activity last week included:
- 42.1M of Federal Farm Credit Bank callable (anytime) in February 2019 and maturing in 3 to 10 years
- 19.4M of Federal Home Loan Mortgage Corporation callable (one-time) in February/March 2019 and February 2020; maturing in 3 to 7 years
- 11.1M of Federal Home Loan Mortgage Corporation callable (quarterly) in 2018 and 2019; maturing in 3 to 5 years
- 14.3M of Federal Agricultural Mortgage Corporation non-callable; maturing February 2023; cheapest bullet in the 5-year sector
Ricky Brillard, CPA
Vining Sparks, IBG