January 16, 2018
For the second consecutive week, Agency yields rose, moving in lock-step with the increase in Treasury yields. U.S. Treasury yields were lifted by market expectations for higher supply due to fiscal expansion, the Fed’s balance sheet normalization plans given the step-up in reduced investments for this month, reports of lower demand from China, and firm economic data. On the week, two-year Agency yields increased 4 bps to 2.03%, 5-year Agency yields improved 6 bps to 2.41%, and yields on 10-year Agencies were higher by 7 bps to 2.90%.
For the second consecutive week, yield spreads for Agency bullets compared to Treasuries were unchanged. Spreads for callable Agencies tightened 2 bps on the short end of the curve (2- and 3-year finals) and 4 to 7 bps on maturities of 5 years and greater. In the near term, we expect agency note spreads to trade in recent ranges, although 3- and 5-year spreads could widen slightly in the week ahead.
The following table reflects last week’s total issuance and call activity across GSE issuers:
|Federal Farm Credit Banks||295,000,000||–|
|Federal Home Loan Banks||220,500,000||–|
|Federal Home Loan Mortgage Corp||173,000,000||–|
|Federal National Mortgage Association||–||–|
|Federal Agricultural Mortgage Corp||33,000,000||–|
Freddie Mac forewent issuing reference notes on its January 10th announcement date and today. The highlight of the agency coupon calendar in the upcoming week will be Fannie Mae’s announcement on Thursday of any plans to sell benchmark notes.
Notable activity last week included:
- Demand for the Federal Farm Credit name callable in January, March, and April 2018
- Demand for Federal Home Loan Bank name callable in January 2019
- Demand for Fannie Mae bullets maturing between 2019 and 2020
- $13.3M of Federal Farm Credit callable in 2018 and 2019
Ricky Brillard, CPA
Vining Sparks, IBG