Agency Update

September 17, 2018

The Treasury market sold off for a second consecutive week, particularly in the belly of the curve, with front- to intermediate-maturity Treasury yields increasing by approximately 8 basis points.  Agency bullet yields moved in line with Treasuries.  Yields for 2-year bullets are trading at 2.84%, 3-year bullet yields increased to 2.93%, and 5-year bullets now yield close to 3.00%.

Yield spreads for Agency bullets compared to Treasures were unchanged, while callable spreads tightened for a third consecutive week.  Spreads for callable Agencies tightened by 1 to 3 basis points for 2- to 5-year final maturities.  Longer callable agencies richened the most, as 15-year callables tightened in by 8 to 10 basis points.  Less-structured 3-year callables increased to 3.12%, and more structured 3-year callables are now trading above 3.00%.  As seen in the charts below, callable yields for 3- and 5-year agency product continued to tick higher and are now at the highest level since the end of 2008.

The following table reflects last week’s total issuance and call activity across GSE issuers:

Last Tuesday, September 11th, Fannie Mae announced issuance of $2 billion in 5-year Benchmark securities priced at +11 to Treasuries.  Last week Freddie Mac passed on its issuance slot, which marked the 8th time out of 12 issuance dates it has passed on this year.   The Federal Home Loan Bank’s next issuance date is this Thursday, September 20th.

Daniel Anderson

Senior Vice President

Vining Sparks

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