March 18, 2019
The Treasury market continued its recent rally and yields ended the week near the lowest levels of the year. The intermediate portion of the yield curve remains inverted, and right now the spread between 2- and 5-year Treasuries is -4 basis points. The slope between 2s and 10s remains positive but, at 15 basis points, is close to the lows of 2019. Last week agency bullets mostly moved in line with Treasuries. Bullet yields for maturities of 3 to 5 years fell by 4 to 5 basis points. Yields for 3-year bullets declined to 2.44%, and 5-year bullets now yield 2.51%.
Agency bullets basically moved in lockstep with government debt, while callable agencies continued their recent widening trend. Currently 3- and 5-year agency bullets spreads are at 5 and 11 basis points, respectively, compared to 10 and 16 basis points at year-end. As highlighted in the charts below, agency securities with maturities of 3 to 5 years are trading at the lowest yields since early 2018. Additionally, bullet spreads have largely tightened in versus Treasuries as the market has rallied over the past several months.
The below table reflects last week’s total issuance and call activity across the primary GSE issuers; call activity continues to be high, especially for the Federal Home Loan Bank and Freddie Mac at $2.4 billion apiece.
Last week Freddie Mac passed on its 4th Reference note slot of the year. The Federal Home Loan Bank issued a $3 billion 2-year SOFR-indexed note that priced at SOFR +11.5. The Federal Farm Credit Bank also issued a $500 million 2-year SOFR note that priced at +12. There are no major issuance slots scheduled for this week as the market will likely focus on the Fed meeting that concludes Wednesday. The next issuance date for the Federal Home Loan Bank is March 26th.
Senior Vice President, Investment Strategies
Vining Sparks IBG, LP