Agency Update

January 29, 2018

Last week, Agency yields rose across the curve, particularly for shorter term maturities, which flattened the curve.  Two-year Agency yields moved higher by 6 bps to 2.15%, the 5-year Agency yield increased 2 bps to 2.53%, and the yield on the 10-year Agency was up 1 bp to 3.01%.

For the fourth consecutive week, yield spreads for Agency bullets compared to Treasuries were unchanged.  Spreads for callable Agencies widened across the curve with larger movements occurring on structures with 5- to 15-year finals.  Spreads with call tenors from 3 months to 1 year in these structures widened 5 to 10 bps.  In the near term, expect agency spreads to remain in recent ranges.

Callable structures with 5-year finals compare favorably to bullets because of the enhanced relative value on a yield spread basis (see graph below).


Even though the curve has flattened, riding the yield curve is still a viable option for buyers of agency bullets with maturities as short as two years over a 12-month horizon (see table below).



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


Issuer Issued Called
Federal Farm Credit Banks          232,000,000                           –
Federal Home Loan Banks       1,559,500,000          100,000,000
Federal Home Loan Mortgage Corp          195,000,000          125,000,000
Federal National Mortgage Association          190,000,000                           –
Federal Agricultural Mortgage Corp              8,365,000                           –
Total       2,184,865,000          225,000,000



On Wednesday, Fannie Mae, as was generally expected, passed on its second benchmark note supply slot of the month.  There are no large agency bullet issues scheduled for announcement in the upcoming week.  The Federal Home Loan Banks have the next scheduled supply, a Global Bond slot on February 7th.


Notable activity last week included:





Ricky Brillard, CPA


Vining Sparks, IBG

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