October 1, 2018
After several weeks of rising Treasury yields, the curve ended last week little changed from the week before. The 2-year Note yield ticked higher by a basis point and the 5- and 10-year Notes fell by a basis point. Agency bullets in the belly of the curve tightened in slightly. Yields for 2-year bullets are trading at 2.85%, 3-year bullet yields fell by 2 basis points to 2.93%, and 5-year bullets now yield 3.02%.
Agency bullets compared to Treasures richened slightly and still look to be attractive sale candidates. Callables mostly widened after tightening in previous weeks. All callable yields regardless of term or structure remain near the highs of this rate cycle. More highly-structured 3- and 5-year callables are now trading at what appear to be attractive absolute yields. For instance, yields on 3-year callables with onetime calls in 1 year increased to 3.05%, and 5-year callables with onetime calls in 2 years have increased to 3.30%. As can be seen in the charts below, spreads for less-structured callables are 5 to 7 basis points tighter versus Treasuries than they were in mid-August, but given the selloff since then yields remain at the high end of the recent trading range.
The following table reflects last week’s total issuance and call activity across GSE issuers:
Last Thursday Freddie Mac declined to issue any Reference notes for the 9th time out of 13 issuance dates this year. This Tuesday, October 2nd, is Fannie Mae’s next issuance date. Next Wednesday, October 10th, is the next slot for the Federal Home Loan Bank.
Senior Vice President