May 8, 2017
Agency yields continued to improve last week, increasing 4 to 8 bps across the curve. Two-year Agency yields increased by 4 bps to 1.39%, 5-year Agency yields improved 8 bps to 1.99%, and yields on 10-year Agencies were higher by 8 bps to 2.73%.
Yield spreads for Agency bullets compared to Treasuries were fairly stable last week, but Agency callables tightened 2 to7 bps, depending on the structure and call tenor.
Activity last week was largely focused on the following:
- Continued demand for 3- to 5-year Agency bullets
- Agency callables with European call options (targeting structures that provide 5 to 8 bps over matched maturity bullets)
- Demand for defensively structured step-up bonds with 3- and 5-year finals, with relatively quick front-end interest rate adjustments
For Agency callables, Freddie remains slightly cheaper in price to the other GSEs. Investors should be able to pick up 2 to 4 bps in Freddie paper, depending on the call structure and tenor.
Michael S. Erhardt, CPA
Senior Vice President
Vining Sparks, IBG