July 17, 2017
Agency yields declined across the curve last week, moving in lock-step with the rally in Treasuries. Two-year Agency yields fell 5 bps to 1.41%, 5-year Agencies declined by 9 bps to 1.94%, and yields on 10-year Agencies decreased by 7 bps to 2.67%.
Yield spreads for Agency bullets compared to Treasuries were stable and remain tight on a historical basis due to low supply. Yield spreads for callable Agencies were mostly unchanged last week. For investors that can handle the duration, spreads on callable Agencies with 10-year finals are near, or in some cases, above their 12-month averages. See the table below depicting Agency yields and spreads by structure.
For the past two weeks, trading activity has been centered on the following:
- Selling Agency bullets with 2018-2019 maturities and adding Treasuries or Agency bullets with a 4 to 5-year finals
- 3YR NC 1YR OTC (pick-up of 9 to 12 bps to bullets)
- Callable Agencies priced at a discount
Michael S. Erhardt, CPA
Senior Vice President
Vining Sparks, IBG