Agency Update

July 2, 2018

Agency yields declined across the curve last week, moving in line with the flattening Treasury curve.  Two-year Agency bullet yields decreased 2 bps to 2.59%, 5-year bullet yields increased 3 bps to 2.82%, and 10-year bullets fell 4 bps to 3.16%.


Yield spreads for Agency bullets versus Treasuries were unchanged across the curve, while spreads on Agency callables widened.  Spreads for callables increased 4 bps for 3-year maturities and cheapened by 3 bps for maturities of 5 and 10 years, regardless of structure.  Wider spreads on callable product essentially offset the week-over-week decline in Treasury yields, and spreads remain near the highs of the past year.

Less structured callables with 5-year finals are trading at the highest yields and widest spreads in more than 5 years and still look attractive given the amount of price risk.  As highlighted in the graphs below, 5-year callables with three-month lockout periods yield approximately 3.20% and are trading at 48 bps versus Agency bullets.

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

There were no large agency bullet issues scheduled for announcement in the previous week.  The Federal Home Loan Bank issued two $1 billion floaters on Tuesday.  Given the holiday on Wednesday, there are no large agency bullet issues scheduled for this week.


Daniel Anderson

Senior Vice President

Vining Sparks

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