Agency Update

February 4, 2019

It was a busy week in the financial markets last week, highlighted by the Fed meeting that concluded on Wednesday and the January jobs report on Friday.  Investors looking for dovish sentiment from the FOMC were no doubt pleased as the Fed appeared to not only pivot to a more neutral monetary stance, but they also amended their Statement Regarding Monetary Policy Implementation and Balance Sheet Normalization to state that they were “prepared to adjust any of the details for completing balance sheet normalization…”  The market rallied significantly during the first half of the week before selling off somewhat on Thursday and Friday.  The yield curve remains inverted between 1 and 7 years and, despite the selloff to end the week, yields across the curve are at levels not seen since the first half of 2018.  Agency bullets mostly moved in line with Treasuries.  Bullet yields for 3- and 5-year maturities fell by approximately 10 basis points to 2.54% and 2.64%, respectively.

Agency bullet spreads tightened in by approximately 1 basis point for 2- and 3-year maturities.  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 the market has seen for most of the last two years.  Callable bonds resumed their tightening trend of the past several weeks.  As an example, less-structured 5-year notes are at the tightest level since early November, and more highly structured 5-year bonds are now trading at the tightest spreads in more than a month.

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

There were no large issuance announcement dates last week for Fannie Mae, Freddie Mac, or the Federal Home Loan Bank.  However, Fannie Mae announced issuance of an 18-month SOFR-indexed floating rate note, and the Federal Farm Credit Bank announced a 12-month SOFR note as well.  The next announcement date for Fannie Mae is this Wednesday, February 6th.

Daniel Anderson

Senior Vice President, Investment Strategies

Vining Sparks IBG, LP

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