July 10, 2017
Agency yields benefited from the Treasury market sell-off over the past two trading weeks. Since Friday, June 30th, two-year Agency yields have increased 9 bps to 1.46%, 5-year Agencies climbed by 19 bps to 2.03%, and yields on 10-year Agencies have risen by 25 bps to 2.74%.
Yield spreads for Agency bullets compared to Treasuries have been relatively stable over the past two weeks, but remain historically tight because of low supply. Weak supply and the low level of implied volatility have also impacted callable Agencies, as yield spreads have contracted 2 to 6 bps during the last week.
Last week investors largely focused on the following:
- Selling Agency bullets with 1- to 2-year finals and adding Treasuries or Agency bullets with a 4- to 5-year final
- 3YR NC 1YR OTC (pick-up of 9 to 12 bps to bullets)
- Callable Agencies priced at a discount
- 5-year Agency step-up debentures
Michael S. Erhardt, CPA
Senior Vice President
Vining Sparks, IBG