March 12, 2018
Agency yields increased across the curve last week, moving in lock-step with the rise in Treasury yields. Treasuries moved little last week, but yields were pushed slightly higher by Friday’s strong employment report. Two-year Agency yields increased by 2 bps to 2.30%, 5-year Agency yields improved 3 bps to 2.73%, and yields on 10-year Agencies were higher by 3 bps to 3.19%.
While yield spreads for Agency bullets compared to Treasuries were unchanged, yield spreads on callables to Treasuries were mixed. Spreads tightened 1 to 6 bps for 3- and 5-year finals and widened 2 bps on the short end of the curve (2-year finals). Structures with 10- and 15-year finals saw widening up to 9 bps on longer call tenors. In the near term, expect for agency debt spreads to move sideways, although the 3-year spreads could tighten further on the roll to a 3-year note.
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:
|Federal Farm Credit Banks||404,000,000||–|
|Federal Home Loan Banks||203,000,000||–|
|Federal Home Loan Mortgage Corp||155,000,000||–|
|Federal National Mortgage Association||–||–|
|Federal Agricultural Mortgage Corp||–||–|
Last week, Freddie Mac, passed its reference note supply slot. It had priced a $2.25 billion 3-year reference note on February 15th after passing its two January slots. The highlight of the agency large bullet calendar in the week ahead will be Home Loan’s announcement on Wednesday of any plans to sell global bonds. It passed its February 22nd slot after pricing a $3 billion 2-year global bond on February 8th.
Notable agency activity last week included:
|Issue||Amount||Bullet /Callable||Call Type||Callable||Maturity|
|FFCB||14.3M||Bullet||2 – 5 years|
|FFCB||50.6M||Callable||Anytime||March and June 2018||3 – 12 years|
|FHLB||18.4M||Callable||Quarterly||March and June 2018||2 – 8 years|
|FHLB||7.3M||Callable||Anytime and Quarterly||January and March 2019||2 – 7 years|
|FHLMC||7.2M||Callable||One-time and Quarterly||May, June, August, and September 2018||3 – 5 years|
|FHLMC||7M||Callable||One-time||March 2019||3 – 4 years|
Ricky Brillard, CPA
Vining Sparks, IBG