October 30, 2017
Agency yields rose for all maturities last week, led by the 10-year maturity range. The jump in rates more than offset the pullback from two weeks ago, and marked the sixth week in the last seven that yields rose. The primary impetus for last week’s rise in interest rates was tax and healthcare discussions in Washington, coupled with questions about the next Fed Chair and the ECB’s plans. Two-year Agency yields increased by 1 bp to 1.66%, 5-year Agency yields climbed 1 bp to 2.09%, and yields on 10-year Agencies were higher by 3 bps to 2.76%.
Yield spreads for Agency bullets and callables compared to Treasuries were unchanged for the week. Compared to two weeks ago, spreads for bullets and callables contracted 2 to 12 bps with most of the tightening occurring in longer-term finals. In the near-term, expect agency note spreads to remain in recent ranges.
The following table reflects last week’s total issuance and call activity across GSE issuers:
|Federal Farm Credit Banks||614,000,000||–|
|Federal Home Loan Banks||2,124,000,000||40,000,000|
|Federal Home Loan Mortgage Corp||670,000,000||150,000,000|
|Federal National Mortgage Association||382,000,000||–|
|Federal Agricultural Mortgage Corp||–||–|
Last week, Freddie Mac forewent issuing reference notes on its October 25th announcement date. There are no large agency bullet issues scheduled for announcement in the upcoming week. Federal Home Loan Bank will have a global bond announcement on November 8th.
Relative value can still be found in the 2- and 3-year part of the curve as yields, for bullet and callable structures are at their 12-month highs. During the past week, we have observed continued demand for the following:
- Variety of dollar price offers across the curve available for regular settle
- Discounted callables
- Max coupon 3-year callables
- Auction paper maturing 5 years and out
Ricky Brillard, CPA
Vining Sparks, IBG