July 30, 2018
Treasuries sold off substantially last week. The curve flattened by one basis point as the spread between 2- and 10-year Notes declined to 29 basis points. Agency bullet yields moved in line with Treasuries. Two-, three- and five-year Agency bullet yields increased by 8 basis points to range between 2.73% and 2.93%. Ten-year bullets cheapened by twelve basis points to 3.31%.
Yield spreads for Agency bullets versus Treasuries were unchanged, while spreads on callable Agencies tightened for a second consecutive week. Callable spreads tightened across nearly all terms and call structures by 2-3 basis points. Despite the tighter spreads, with the rise in Treasury yields, less-structured 3-year callables now yield more than 3.0% and 5-year callables yield more than 3.35%. That equates to approximately 150 basis points above the five-year average yield for both terms.
The following table reflects last week’s total issuance and call activity across GSE issuers:
Last Wednesday, July 25th, the Federal Home Loan Bank passed on its global bond issuance slot. That marked the sixth time out of nine issuance dates it has passed on this year. Last week Fannie Mae announced its first ever floating-rate security indexed off the Secured Overnight Financing Rate (SOFR), an alternative for LIBOR. The issue was heavily oversubscribed, indicating strong demand. There are no large agency bullet issues scheduled for announcement in the upcoming week. The next issuance date is next Tuesday, August 7th, for the Federal Home Loan Bank.
Senior Vice President