May 13, 2019
Last week the Treasury market essentially gave back the yields it had gained the week before as the market largely rallied on continuing news regarding escalating trade tensions. The rate on overnight funds and the yield on 10-year Treasuries are now approximately equal, with basically every point on the curve in between at a lower level. After mostly tightening in the week before, callables, along with 3-year bullets, widened out as sovereign debt rallied. Yields for 3- and 5-year bullets fell by 5 to 6 basis points to 2.29% and 2.33%, respectively.
Spreads on bullets are just off the tightest levels since October and last week 3-year bullets widened to 6 basis points over Treasuries. While not entirely earth-shattering, that moved 3-year bullet spreads back to the level from a month ago. Spreads for 5-year agency bullets have not moved in a month and are trading at 7 basis points. As recently as year-end, those spreads were closer to 11 and 18 basis points for 3- and 5-year bullets, respectively. Callable agencies also cheapened up on the week, regardless of maturity or call structure. As highlighted in the chart below, agency product with 2- and 3-year maturities appears to be the cheapest part of the curve on a spread basis.
The below table reflects last week’s total issuance and call activity across the primary GSE issuers. Agency issuance declined modestly to $3.7 billion.
Last Tuesday the Federal Home Loan Bank passed on issuing new Global notes, its 6th time to pass out of 7 slots year-to-date. This Wednesday, May 15th, is the upcoming date for Freddie Mac to announce Reference note issuance. Next Wednesday is the upcoming announcement date for Fannie Mae to announce any Benchmark issuance.
Senior Vice President, Investment Strategies
Vining Sparks IBG, LP