November 5, 2018
The Treasury market sold off last week and the yield curve steepened out a bit. Agency debt mostly tightened in versus Treasuries, reversing the widening trend from the previous week. Agency bullets with maturities between 2 and 5 years saw yields increase by 9 to 11 basis points. Bullets with 2-year maturities now yield 2.96%, 3-year bullet yields increased to 3.05%, and 5-year bullets are trading at 3.14%.
Agency bullet spreads over Treasuries tightened after widening the week prior. Spreads on 3- and 5-year Agency bullets tightened by 1 to 2 basis points but are still trading near the widest spreads of the past year. Bullets with 3-year maturities are now trading at +6 versus sovereign debt, and 5-year bullets now offer an 11 basis point pickup over Treasuries. Callable spreads tightened in across the curve, regardless of structure. As highlighted in the charts below, less-structured 3- and 5-year callable yields continue to tick higher and are at or near the highs of this economic cycle.
The following table reflects last week’s total issuance and call activity across GSE issuers:
Last Monday, October 29th, Fannie Mae announced the issuance of 2-year Benchmark notes that printed at +7.5 basis points over Treasuries. This Tuesday, November 6th, is the upcoming issuance date for Freddie Mac to issue Reference notes. Next Wednesday, November 14th, is the next issuance date for Fannie Mae.
Senior Vice President