Agency Update

March 11, 2019

It was a rather busy week in the financial markets last week with numerous economic data releases, a moderate amount of speaking appearances from Fed governors, and the disappointing jobs report that was released Friday.  The Treasury market rallied and yields ended the week markedly lower, with double-digit drops for maturities 3 years and longer.  The intermediate portion of the yield curve remains inverted, and right now 1-year Bills are trading 9 basis points above 5-year Notes.  Last week agency bullets mostly moved in line with Treasuries.  Bullet yields for maturities of 2 to 5 years fell by approximately 9 to 13 basis points.  Yields for 3-year bullets declined to 2.49%, and 5-year bullets now yield 2.54%.


Agency bullets basically moved in lockstep with sovereign debt, while callable agencies ended their months long tightening trend.  Over the past 2 months, 3-year bullet spreads have been halved and 5-year agency bullets have tightened in to 11 basis points (compared to 17 basis points in early January).  As shown in the charts below, agency securities with maturities of 3 to 5 years are trading at the lowest yields since early 2018.  Additionally, spreads have tightened in considerably compared to the levels from several months ago.

The below table reflects last week’s total issuance and call activity across the primary GSE issuers; call activity was particularly high, especially for Freddie Mac at nearly $2.4 billion.

Last week Fannie Mae passed on its Benchmark slot, and the Federal Home Loan Bank passed on its Global issuance slot.  This Wednesday is the upcoming Reference note issuance date for Freddie Mac.  The next issuance date for the Federal Home Loan Bank is March 26th.

Daniel Anderson

Senior Vice President, Investment Strategies

Vining Sparks IBG, LP

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