Agency Update

March 15, 2021

After several weeks of heightened volatility, last week was a relatively quiet one, but that did not prevent yields on the longer end of the curve from moving higher.  The 10-year closed the Friday session at 1.63%, up 6 basis points from the previous week to its highest weekly close since last January.  The 5-year yield increased another 4 basis points to 0.84% and is now up 40+ basis points in only a month.  As expected, the $1.9 trillion American Rescue Plan Act was signed into law on Thursday.  Agency bullets and callables mostly tightened further versus Treasury notes.  This week’s market action will be dominated by the FOMC meeting that concludes on Wednesday and Fed Chair Jay Powell’s press conference to follow.  The market is looking to gauge whether the timeline has been moved forward given the latest round of fiscal stimulus, so the “Dot Plot” will be studied keenly, as will be the Fed’s latest growth and inflation projections.  Bond portfolio managers can expect some choppiness heading into and following the meeting on Wednesday.

Last week agency bullet spreads somehow tightened further, despite already being at the tightest spreads on record.  Bullets are now trading at a 1-basis point spread or less out to 5 years.  Bullets in the 10-year part of the curve are now at +6 to Treasurys, also a new record.  Callables mostly tightened by a basis point or two with the exception 2- to 3-year notes, which widened by about the same amount.  As can be seen in the graph below, yields on 5-year paper have increased to approximately 1.00% (depending on structure) after trading around 60 basis points to begin February.

The following table reflects last week’s total issuance and call activity across the primary GSE issuers.  Total issuance increased to $7.9 billion and total call volume increased to $3.1 billion.  Callable owners can continue to expect heavy call volume, and for specific dates and amounts, be sure to log in to the Client Portal on the Vining Sparks website.

Last week Freddie Mac passed on its Reference slot just as it has all year.  The Federal Home Loan Bank has a Global issuance slot next this Tuesday, March 16th, with another to follow next Wednesday, the 24th.

Daniel Anderson

Senior Vice President, Investment Strategies

Vining Sparks IBG, LP

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