March 26, 2018
Agency yields declined across the curve last week, moving in lock-step with the rally in Treasuries. Two-year Agency yields fell 3 bps to 2.34%, 5-year Agencies declined by 3 bps to 2.72%, and yields on 10-year Agencies decreased by 3 bps to 3.12%.
Yield spreads for Agency bullets compared to Treasuries were unchanged, while yield spreads on Agency callables widened 3 to 5 bps, depending on the structure and call tenor. In the near term, expect agency debt spreads to be range bound. For investors that can handle the optionality, callable structures with 10-year finals have compared favorably to bullets for the past month because of the enhanced relative value on a yield spread basis (see graph below).
The following table reflects last week’s total issuance and call activity across GSE issuers:
Fannie Mae skipped its benchmark note issuance slot last week and this morning. It has now passed on its last four slots. There are no large agency bullet issues scheduled for announcement in the upcoming week. Freddie Mac has the next scheduled supply, a reference note supply slot on April 3rd.
Notable agency activity last week included:
Ricky Brillard, CPA
Vining Sparks, IBG