Agency Update

April 5, 2021

Treasury yields resumed their march higher last week following the release of mostly positive economic data, the announcement of President Biden’s $2.25 trillion infrastructure package, and the blowout jobs report on Friday.  The 10-year yield increased 4 basis points on the week to 1.72% while the 5-year yield popped 11 basis points to 0.98%, its highest level in more than a year.  In fact, the 5-year Treasury yield has doubled since mid-February—quite the move in only 7 weeks.  Agency bullets mostly moved with Treasurys while callable spreads were mixed on the week.  This week’s economic calendar is a bit lighter and features the ISM Services release this morning (Monday) and several Fed speakers scheduled for the latter half of the week.

Agency bullets largely moved in lockstep with Treasurys and bullets remain at extremely tight spreads.  Spreads on bullet paper are between +0 to +2 basis points out to approximately 7 years.  With spreads this tight, it is no huge surprise that the Vining Sparks trade desk continues to see demand for Treasury paper in lieu of bullets.  Agency callables tightened by a basis point on the front end of the curve while widening by several basis points on the longer end.  Most of the internal purchases last week occurred in the 5-year part of the curve, but the desk continues to see relative value in the 5- to 10-year area of the curve.  There are still some discount callables in dealer inventories, although spreads have tightened in that space as supply has thinned out.

The following table reflects last week’s total issuance and call activity across the primary GSE issuers.  Total issuance fell to $8.5 billion while total call volume fell to $2.5 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 note slot and has yet to issue a large bullet deal this year.  Fannie Mae has a Benchmark slot this Thursday, April 8th.  The Federal Home Loan Bank has its next issuance date next Wednesday, April 14th.

Daniel Anderson

Senior Vice President, Investment Strategies

Vining Sparks IBG, LP

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