August 2, 2021
The FOMC concluded its July meeting last week and, as expected, there were no changes made to monetary policy. For months now investors have looked for details regarding the Fed’s eventual QE taper, and on Wednesday Chair Powell confirmed that the committee held in depth talks regarding timing, pace, and composition of tapering at their meeting. Bond yields grinded lower for the 5th consecutive week and the 10-year closed the Friday session at 1.22%, its lowest weekly close since February. The parabolic surge in COVID-19 cases in the past month is likely weighing on bond yields given the uncertainty over the pandemic looms as large as any set of economic data. For what it’s worth, the Institute for Health Metrics and Evaluation (IHME) COVID-19 model currently projects this Delta wave to peak within the next two weeks. Last week, spreads on agency bullets were basically unchanged while callables tightened in a bit versus Treasurys. This week features both ISM PMI surveys plus the big July jobs report on Friday. This morning the ISM manufacturing survey came out weaker than expected, pushing bond yields lower still, with the 10-year down 6 basis points to 1.18%.
Agency bullet spreads were basically flat last week and remain near all-time tights. Agency callables tightened in for 5- and 10-year maturities and spreads moved lower by 1 and 2 basis points, respectively. As can be seen in the graphs below, yields on 3- and 5-year callables haven’t declined nearly to the degree that yields on Treasurys have. Last week was a rather light week internally but callable buyers continued to target the 3- to 7-year part of the curve with the bulk of the purchases.
The following table reflects last week’s total issuance and call activity across the primary GSE issuers. Total issuance surged to $8.0 billion while call volume dropped to $2.2 billion. For specific call dates and amounts for individual bond portfolios, be sure to log in to the Client Portal on the Vining Sparks website.
Last week Freddie Mac passed on its Reference slot. Fannie Mae has a Benchmark issuance date this Wednesday, August 4th. Next week the Federal Home Loan Bank has an issuance slot on Tuesday, and Freddie Mac has another Reference slot on Thursday.
Senior Vice President, Investment Strategies
Vining Sparks IBG, LP