January 13, 2020
Treasury yields ended last week modestly higher, increasing by 3 to 4 basis points for maturities of 2 to 10 years. A flight to quality following news of an Iranian missile strike sent yields plunging Tuesday night, but by the time the market opened on Wednesday Treasury yields had recovered as the market’s fears of a prolonged conflict with Iran eased. Agency bullets tightened in versus Treasurys, particularly in the intermediate part of the curve.
Agency bullet spreads continued to grind tighter, and 5-year bullets tightened by 1 basis point to 5. As mentioned in recent weeks, agency bullets remain ideal sale candidates given how tight spreads are. From a relative-value standpoint, the 8-year part of the curve appears to be the most attractive given that spreads widen to approximately a quarter percentage point. One could argue that 6-year maturities are also attractive due to the fact spreads nearly triple versus 5-year maturities. Callables tightened last week after widening out the week before. Most of the relative value in callables still appears to be for maturities beyond 5 years.
The following table reflects last week’s total issuance and call activity across the primary GSE issuers. Call volume remained elevated at more than $4.7 billion, and callable owners can likely continue to expect elevated call volume in their higher coupon issues over the near term. Total agency issuance volume was nearly $2.3 billion.
Fannie Mae had two Benchmark note issuance slots last week and announced a 5-year note on its first issuance date, which priced at +8. It passed on its second issuance date of the week. Freddie Mac has its first issuance date of the year this Wednesday, January 15th. The FHLB has an issuance slot next Wednesday.
Senior Vice President, Investment Strategies
Vining Sparks IBG, LP