April 18, 2022
The Treasury curve steepened last week as shorter-term yields declined while the longer end sold off, sending the 10-year yield to 2.83%, up another 12 basis points from the week before. With the 10-year yield moving higher, the 2s-to-10s spread had un-inverted the previous week, and last week the 3s-to-10s spread moved into positive territory after being negative for much of the past month. Multiple Fed governors last week emphasized the need to move policy “expeditiously” to tamp down inflation, helping spur the move higher in yields. March CPI data was released on Tuesday and showed an encouraging slowdown in core CPI, with some market participants celebrating the peak in inflation, although it seems too early to be able to say so with any real definitiveness. Agency bullet spreads were unchanged on the week while callable spreads were mixed (details below). The economic calendar is rather quiet this week with a handful of housing reports and several Fed speakers scheduled to speak, including Fed Chair Powell on Thursday. The market is currently pricing in approximately 90% odds a 50-basis point hike at each of the next two FOMC meetings, with the May meeting scheduled for two weeks from now.
Agency bullet spreads were largely unchanged last week and remain at 1 to 2 basis points out to roughly 5 years. Helping to keep spreads tight is the scarce supply in bullets on the front end of the curve. With bullets trading at such tight spreads, the Vining Sparks trade desk continues to move a meaningful amount of Treasurys. Callables mostly widened last week, with 2- and 3-year callables widening by a couple of basis points. Some structures on the longer end, namely 15-year maturities, tightened in modestly. As can be seen in the graphs below, bond yields have moved up in a near straight line to start the year. One would think that the selling pressure in bonds cannot continue forever, despite the hot inflation.
The following table reflects last week’s total issuance across the primary GSE issuers. Total issuance increased to $3.2 billion while call volume remained at zero. For specific call dates and amounts for individual bond portfolios, be sure to log in to the Client Portal on the Vining Sparks website.
There were no major issuances scheduled for the holiday-shortened week. The Federal Home Loan Bank has a Global issuance slot this Wednesday, April 19th, and Fannie Mae follows up with a Benchmark slot on Wednesday. Freddie Mac has its next Reference slot next Wednesday, April 27th.
Senior Vice President, Investment Strategies