June 12, 2017
Agency yields increased 2 to 9 bps last week, with larger movements occurring on longer maturities. On the week, two-year Agency yields increased 6 bps to 1.41%, 5-year Agency yields increased 7 bps to 1.88%, and yields on 10-year Agencies climbed by 9 bps to 2.61%.
Yield spreads for Agency bullets compared to Treasuries were unchanged with the exception of 1-year bullets, which experienced a tightening of 2 bps. Limited supply continues to weigh on the front end of the Agency yield curve.
Yield spreads on Agency callables were relatively stable, tightening 1 to 2 bps, depending on the structure and call tenor. Although, during the past several weeks, we have seen yield spreads widen 1 to 3 basis points on 5-year callables (see chart below), which makes these structures relatively attractive versus shorter finals.
Agency redemptions were relatively light last week. In aggregate, the Agencies called 33 issues totaling $938mm.
During the past week, we have observed continued demand for the following structures:
- Agency bullets with 2 to 5-year finals
- 3YR NC 1YR OTC (pick-up of 7 to 10 bps to bullets)
Michael S. Erhardt, CPA
Senior Vice President
Vining Sparks, IBG