Agency Update

September 25, 2017

For the second consecutive week, Agency yields experienced a modest improvement last week.  Two-year Agency yields increased by 5 bps to 1.49%, 5-year Agency yields climbed 5 bps to 1.95%, and yields on 10-year Agencies were higher by 5 bps to 2.60%.


Yield spreads for Agency bullets compared to Treasuries were unchanged, while yield spreads on Agency callables tightened 1 to 3 bps, depending on the structure and call tenor.  In the near-term, expect agency note spreads to be confined to recent ranges although there might be some near-term tightening of spreads on the roll to new Treasury issues.  For investors that can handle the duration, spreads on callable Agencies with 10-year finals are above their 12-month averages.  Callable Agency spreads versus bullets tightened 1 to 3 bps across all structures.


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




Federal Farm Credit Banks                                           259,000,000                                           –
Federal Home Loan Banks                                           420,000,000                          420,000,000
Federal Home Loan Mortgage Corp                                           605,000,000                       1,305,000,000
Federal National Mortgage Association                                                            –                          100,000,000
Federal Agricultural Mortgage Corp                                             30,000,000                                           –
Total                                        1,314,000,000                       1,825,000,000

The highlight of the agency coupon calendar in the upcoming week will be Freddie Mac’s announcement on Wednesday of any plans to sell reference notes.  It has passed its last 3 slots after pricing a $3 billion 2-year bullet on July 18th.  Fannie Mae will have a benchmark note announcement on October 4th.


Last week, activity was heavily focused on customers buying in the 3 to 5-year finals.  Good value can be found in odd lot off-the-run bullet paper, which is trading 5 to 15 bps wide to on-the-run benchmarks.  Also, opportunities for extra yield exist out on the curve with the 6, 7, and 10-year auction paper.

Ricky Brillard, CPA


Vining Sparks, IBG

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