June 25, 2018
For the second consecutive week, the curve flattened with yields on Agencies unchanged or declining across the curve, as a revival of U.S.-proposed tariffs on Chinese goods and a swift retaliation overseas sent the markets into retreat. Two-year Agency yields were unchanged at 2.61%, 5-year Agency yields fell 3 bps to 2.85%, and yields on 10-year Agencies were lower by 2 bps to 3.20%.
Yield spreads for Agency bullets compared to Treasuries were unchanged, while yield spreads on callables to Treasuries were mixed depending on the structure and call tenor. Spreads for callable Agencies tightened 1 to 5 bps with 3- and 5-year finals, but widened 1 bp on maturities of 10 years and greater. As seen below, Agency callables with 5- and 10-year finals remain appealing from a relative value perspective as current spreads compare favorably to their 12-month averages.
The following table reflects last week’s total issuance and call activity across GSE issuers:
Freddie Mac forewent issuing reference notes on its June 19th announcement date. On Thursday, Fannie Mae announced that it priced its new $2.5B three-year benchmark note due on June 22, 2021. There are no large agency bullet issues scheduled for announcement in the upcoming week.
Ricky Brillard, CPA
Vining Sparks, IBG