March 5, 2018
Agency yields were mixed on the week with modest increases on shorter-term maturities and small declines for longer-term maturities, resulting in a slightly flatter curve. For the week, two-year Agency yields moved higher by 1 bp to 2.28%, the 5-year Agency yield improved 2 bps to 2.70%, and yields on 10-year Agencies fell 1 bp to 3.16%.
Yield spreads for Agency bullets compared to Treasuries widened by 1 to 2 bps, while yield spreads on callables to Treasuries were mixed. Spreads widened 5 to 10 bps for 3-year finals, but tightened 5 bps on 15-year structures. As seen below, callable structures with 3-year finals compare favorably to bullets 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:
|Federal Farm Credit Banks||395,000,000||–|
|Federal Home Loan Banks||529,500,000||–|
|Federal Home Loan Mortgage Corp||1,280,000,000||–|
|Federal National Mortgage Association||–||–|
|Federal Agricultural Mortgage Corp||–||–|
On Tuesday, Fannie Mae skipped its benchmark note issuance slot. It passed on its benchmark note supply slot on January 24th after pricing a $2B five-year benchmark note on January 19th. The highlight of the agency coupon calendar in the upcoming week will be Freddie Mac’s announcement tomorrow of any plans to sell reference notes.
Notable agency activity last week included:
- 13.8M of Farmer Mac bullets maturing February 2023
- 14.7M of Freddie Mac callable (quarterly) in March, April, June and December 2018 and maturing in 2 to 5 years
- 8.7M of Freddie Mac callable (one-time and quarterly) in February and March 2019 and maturing in 3 to 4 years
- 17.4M of Federal Farm Credit Bank bullets maturing in 2 to 5 years
- 23.2M of Federal Farm Credit Bank callable (anytime) in March and June 2018 and maturing in 8 to 15 years
- 16M of FHLB callable (anytime) in March 2019 and maturing in 7 to 10 years
- Federal Farm Credit Bank and FHLB auction paper, especially prints out past five years, remain cheap versus LIBOR
Ricky Brillard, CPA
Vining Sparks, IBG