Agency Update

November 13, 2018

The Treasury curve flattened somewhat on the week as short-term Treasuries sold off while debt on the longer end of the curve rallied.  Agency bullets mostly moved in line with Treasuries.  Agency bullets with 2- and 3-year maturities saw yields increase by 2 basis points and now yield 2.98% and 3.07%, respectively.  Bullets with 5-year maturities were unchanged at 3.15% and 10-year bullet yields fell by 3 basis points to 3.53%.

Agency bullet spreads versus Treasuries were largely unchanged on the week.  Callable spreads on the front end of the curve were mostly unchanged to slightly tighter depending on call structure.  There still appears to be good relative value in onetime calls in 1 year on 3-year final paper printing at +20 versus Treasuries, as well as onetime calls in 2 years for 5-year final paper at approximately +36 over Treasuries.  Additionally, 5-year Agencies with short lockout Bermuda calls are coming in at historically wide spreads of 55 to 60 basis points.

The following table reflects last week’s total issuance and call activity across GSE issuers:

Last Tuesday, November 6th, Freddie Mac declined to issue Reference notes but did announce issuance of $1 billion in 6-month floating notes; this was Freddie Mac’s first floating rate issue indexed to SOFR.  This Wednesday, November 14th, is the next issuance date for Fannie Mae.  Next Monday the 19th is the upcoming announcement date for Fannie Mae to issue Benchmark securities.

Daniel Anderson

Senior Vice President

Vining Sparks

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