March 25, 2019
To say that there was a lot of market movement last week would be an understatement. Treasuries rallied sharply following the Fed meeting on Wednesday, then rallied further on Friday in reaction to dour economic data out of Europe. The yield curve inverted between 3-month and 10-year Treasuries for the first time since 2007, seen by most investors as a sign the economy may be headed for a slowdown. On Friday the slope between 2s and 10s finished the day at only 12 basis points, and the 2s to 5s spread inverted further to -8 basis points. Last week agency bullets mostly moved in line with Treasuries. Bullet yields for maturities of 3 to 5 years fell by approximately 14 to 15 basis points. Yields for 3-year bullets declined to 2.30%, and 5-year bullets now yield 2.33%.
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 6 and 9 basis points, respectively. As highlighted in the charts below, agency bullets 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. Callables, on the other hand, are at the widest spreads in a month.
The below table reflects last week’s total issuance and call activity across the primary GSE issuers. Last week’s call activity was elevated at over $9 billion. The major agency issuers have called $18.6 billion in securities since the beginning of March.
Last week there were no major issuance slots scheduled. Tomorrow, March 26th, is the next issuance date for the Federal Home Loan Bank. Next Tuesday, April 2nd, is the upcoming issuance slot for Freddie Mac.
Senior Vice President, Investment Strategies
Vining Sparks IBG, LP