March 4, 2019
The Treasury market sold off last week and the yield curve steepened modestly, with the bulk of the movement appearing to be driven by the better-than-expected GDP report that came out Thursday. While the intermediate portion of the curve remains inverted, the recent steepening pattern brought 2- and 5-year yields to approximately equal levels. The difference between 1- and 5-year Treasuries is now just over a basis point, compared to last week when, at one point, 5-year Notes were trading 8 basis points rich to 1-year Bills. Agency bullets mostly moved in line with Treasuries. Bullet yields for maturities of 2 to 5 years increased by approximately 6 to 7 basis points. Yields for 3-year Treasuries moved to 2.58% and 5-year Notes now yield 2.67%.
Both agency bullets and callable agencies mostly tightened in versus Treasuries. 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 highlighted in the chart below, agency securities with maturities of 3 years and longer are just off the lows of the past 12 months.
The below table reflects last week’s total issuance and call activity across the primary GSE issuers.
Last week Freddie Mac passed on its 3rd issuance date of the year. The next issuance slot for the Federal Home Loan Bank is this Thursday, March 7th. Next Wednesday, March 13th, is the upcoming issuance slot for Freddie Mac.
Senior Vice President, Investment Strategies
Vining Sparks IBG, LP