Agency Update

April 27, 2020

Last week was a relatively quiet one in the bond market as investors mostly focused on unprecedented developments in the oil market and Congress’s signing of additional fiscal stimulus funds.  Bond traders mostly took the news in stride, with 2- to 5-year Treasury yields rising by 1 to 2 basis points while the 10-year fell by 4 basis points.  Nearly all fixed income sectors tightened in versus sovereign debt, agency debentures included.  The week to come will be a busy one, headlined by a Fed meeting that concludes on Wednesday, the initial estimate for 1st quarter GDP amid other major economic data releases, plus corporate earnings reports from some major names.  Additionally, with some states beginning to ease out of lockdown, the coronavirus case count data will continue to be watched closely for evidence of declining positive cases.

Both agency bullets and callables tightened versus government debt last week.  Bullets across nearly every portion of the yield curve tightened by approximately 5 basis points.  Callables tightened by the most for shorter term maturities, but nearly all call structures tightened by 5 to 10 basis points for notes with maturities ranging from 2 to 10 years.  This was the biggest move in spreads in roughly 6 weeks—back in March, with plunging Treasury yields, agencies widened out significantly—and it would not be surprising if last week’s tightening trend continued and spreads revert closer to the mean of the past decade or so.  Customers of Vining Sparks continue to stay active in the agency market, particularly in callables given how low absolute yields are on bullets, and with spreads still well above average, that purchase activity will likely persist.

The following table reflects last week’s total issuance and call activity across the primary GSE issuers.  Total issuance was flat at $6.7 billion and call volume was also roughly flat at $10.3 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 Fannie Mae announced a $3.5 billion 5-year Benchmark note that priced at +30.  There are no major issuance dates scheduled for this week.  Freddie Mac has an upcoming issuance slot next Tuesday, May 5th.

Daniel Anderson

Senior Vice President, Investment Strategies

Vining Sparks IBG, LP

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