October 29, 2018
Heightened volatility in equities last week led to a Treasury market rally and a somewhat flatter yield curve. Agencies largely underperformed sovereign debt. Agency bullets with maturities between 2 and 5 years fell by 3 to 7 basis points. Bullets with 2-year maturities now yield 2.87%, 3-year bullets are trading at 2.96%, and 5-year bullet yields dipped to 3.04%.
Agency bullet spreads over Treasuries widened, especially in the belly of the curve. Spreads on 3- and 5-year Agencies widened by 2 to 4 basis points; 3-year bullets are now trading at +10 versus sovereign debt, and 5-year bullets now offer an 13 basis point pickup over Treasuries and are trading near the widest spreads of the past year. Callable spreads also continued their recent widening trend. Callable yields returned to basically the same level as two weeks ago. As highlighted in the charts below, due to the wider spreads, less structured 3- and 5-year callable yields held near the recent highs.
The following table reflects last week’s total issuance and call activity across GSE issuers:
Last Thursday the Federal Home Loan Bank elected to pass on issuing Global securities. Today, October 29th, Fannie Mae announced the issuance of 2-year Benchmark notes with price talk at +7.5 basis points over Treasuries. Next Tuesday, November 6th, is the upcoming issuance date for the Freddie Mac to issue additional Reference notes.
Senior Vice President