May 20, 2019
Treasury prices continued to move higher last week on what appeared to be a flight-to-quality trade primarily driven by trade news regarding China. The week ended with the 2-year Treasury at the lowest level since February 2018 and 5- and 10-year Notes back to year-end 2017 levels. Both agency bullets and callables resumed their recent widening trend. Yields on 3-year bullets ended the week down 9 basis points at 2.21%, and 5-year bullets finished the week 8 basis points lower at 2.26%.
Spreads on agency bullets moved higher for 2-, 5-, and 10-year maturities. Callable agencies also cheapened up modestly on the week, regardless of maturity or call structure. As highlighted in the chart below, the agency bullet curve starts to steepen up for maturities out past 5 years. While 5-year bullets are trading at 8 basis points over government debt, below the 12-month average of 10 basis points, bullets in the secondary market with maturities of ~5.5 years are trading at spreads of a dozen basis points or more. Spreads on bullets do not reach 20 basis points until just shy of the 7-year part of the curve.
The below table reflects last week’s total issuance and call activity across the primary GSE issuers. Agency call volume doubled to over $4 billion.
Last Wednesday Freddie Mac passed on its issuance date for any new Reference notes, just as it has passed throughout 2019. This Wednesday is the upcoming announcement date for Fannie Mae to announce any Benchmark issuance. Next Wednesday Freddie Mac has another issuance slot.
Senior Vice President, Investment Strategies
Vining Sparks IBG, LP