July 24, 2017
Agency yields moved lower for the second consecutive week, with most of the movement occurring in longer term finals, resulting in a slightly flatter curve. Two-year Agency yields fell 1 bp to 1.40%, 5-year Agencies declined by 6 bps to 1.88%, and yields on 10-year Agencies decreased by 8 bps to 2.59%.
Yield spreads for Agencies compared to Treasuries were stable and remain low on a historical basis due to reduced supply and low implied volatility.
The bond market rally has caused the GSEs to increase their redemption activity. On Friday, the GSEs collectively announced the redemption of $1.5bn, while only $160mm was issued.
Recent 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 6-year finals
- 3YR NC 1YR OTC (pick-up of 9 to 12 bps to bullets)
Michael S. Erhardt, CPA
Senior Vice President
Vining Sparks, IBG