Agency Update

August 17, 2020

Treasury yields moved meaningfully higher last week on what appeared to be a combination of improving economic and virus data, weak demand at a record-size auction of 30-year bonds, and rising inflation expectations.  Yields were up across the curve and moved in a decidedly steeper fashion, with the 10-year yield increasing by 15 basis points to end the week at its highest level since mid-June.  Agency bullets mostly moved in line with Treasurys while callables mostly tightened on the week.  Yields are down modestly so far this morning.  The economic calendar is relatively light this week and the biggest market mover is likely the release of the July FOMC meeting minutes on Wednesday.

Spreads on agency bullets were mostly unchanged last week other than for longer tenors.  Bullets with 10-year maturities tightened by approximately 3 basis points and ended the week at yields of 1.03%.  Spreads on bullets with 2- to 5-year maturities were basically unchanged on the week and yields increased by 2 to 6 basis points.  Callables moved tighter by 3 to 7 basis points across the curve and across various structures.  Internal activity in agency paper remains very high, with the most activity in the 3- to 5-year part of the curve but still plenty of buyers in the 6- to 15-year portion.  As highlighted in the charts below, spreads remain well below the levels seen in March and April but are still above the relatively tight levels seen at the beginning of the year.

The following table reflects last week’s total issuance and call activity across the primary GSE issuers.  Total issuance increased to $11.0 billion while call volume declined to $6.2 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 the Federal Home Loan Bank announced a $1 billion 2-year Global note that printed at +6.5.  This week Freddie Mac has a Reference note announcement date on Wednesday.  Fannie Mae has an upcoming Benchmark issuance slot next Tuesday.

Daniel Anderson

Senior Vice President, Investment Strategies

Vining Sparks IBG, LP

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