January 28, 2019
Last week the Treasury market gave back some of the yield it had gained the week before. The market rallied, with yields falling by 2 to 4 basis points for maturities 2 years and out. The front end of the curve is still slightly inverted, and agency bullets resumed their recent tightening trend. Bullet yields for 3-year maturities fell by 3 basis points to 2.65%, and 5-year bullet yields declined 4 basis points to 2.74%. For investors that can assume the added duration, 7-year bullets are still trading at spreads of 25 basis points or more.
Agency bullet spreads tightened in by approximately 1 to 2 basis point for maturities greater than 2 years. Bullets in the 5-year part of the curve are currently trading at 14 basis points over Treasuries, the tightest spreads since the end of November but still at wider margins than the market saw for most of the last two years. Callable bonds also mostly tightened in compared to Treasuries but remain near the wide marks of the past several years.
The following table reflects last week’s total issuance and call activity across GSE issuers:
Last week the Federal Home Loan Bank passed on its second issuance date of the year after passing on 13 of 18 slots in 2018. There are no large issuance announcement dates this week for Fannie Mae, Freddie Mac, or the Federal Home Loan Bank. Next week is the upcoming announcement date for Fannie Mae on February 6th.
Senior Vice President, Investment Strategies
Vining Sparks IBG, LP