Agency Update

January 22, 2019

Last week the Treasury market sold off notably for maturities 2 years and out, and the yield curve steepened somewhat.  Some of the selloff has been offset with this morning’s bond market rally as yields are up 3 to 4 basis points across the curve today.  The yield curve remains inverted from 1 to 7 years.  Agency bullets tightened in versus sovereign debt.  Bullet yields for 3-year maturities increased 8 basis points to 2.61%, and 5-year bullet yields increased by 9 basis points to 2.78%.

Agency bullet spreads tightened in by approximately 1 basis point across the curve.  Bullets in the 5-year part of the curve are still trading at 16 basis points over Treasuries, double the 7 to 8 basis points from several months ago and close to the highest levels since early 2016.  Callable bonds also tightened in compared to Treasuries.  As highlighted in the chart below, despite spreads on bullets and callables mostly tightening on a week-over-week basis, agency securities are still trading near the high marks of the past 12 months regardless of term or structure.

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

Last week Freddie Mac passed on its second issuance date of the year after passing on 14 of 16 slots in 2018.  Tomorrow, January 23rd, is the next issuance date for the Federal Home Loan Bank.  There are no large issuance announcement dates next week for Fannie Mae, Freddie Mac, or the Federal Home Loan Bank.  The next announcement date for Fannie Mae is February 6th.

Daniel Anderson

Senior Vice President, Investment Strategies

Vining Sparks IBG, LP

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