November 20, 2017
Last week, long-dated Treasury yields fell while short-dated yields rose as investors added to bets that the FOMC will raise rates in December. The House passed their tax reform measure, which marks a significant achievement in the GOP’s effort to overhaul the current tax system. Senate Republicans aim to pass their own bill as early as the week following Thanksgiving. The Agency curve also continued to flatten as two-year Agency yields increased 7 bps to 1.78%, 5-year Agency yields improved 1 bp to 2.12%, and yields on 10-year Agencies were lower by 6 bps to 2.68%.
Yield spreads for Agency bullets compared to Treasuries were unchanged, while yield spreads on Agency callables widened 1 bp on structures with 15-year finals. In the near term, expect spreads to move sideways. The combination of a flatter curve and spread widening has enhanced the relative value of callable structures with 10-year and 15-year finals. As seen on the table below, current spreads compare favorably to their 12-month averages.
The following table reflects last week’s total issuance and call activity across GSE issuers:
|Federal Farm Credit Banks||380,000,000||75,000,000|
|Federal Home Loan Banks||437,000,000||350,000,000|
|Federal Home Loan Mortgage Corp||1,060,000,000||290,000,000|
|Federal National Mortgage Association||–||60,000,000|
|Federal Agricultural Mortgage Corp||12,000,000||–|
Last week, Fannie Mae skipped its benchmark note issuance slot and Federal Farm Credit Bank priced a $500 million 3-year bullet due on November 27, 2020. It was the agency’s largest 3-year bullet since December 2014. There are no large bullet announcements scheduled for the Thanksgiving week by the agencies. Federal Home Loan Bank will have a global bond announcement on November 29th.
Ricky Brillard, CPA
Vining Sparks, IBG