August 3, 2020
The bond market rallied further last week and Treasury yields ended Friday at the lowest closing level on record after declining 3 to 7 basis points for 2- to 10-year notes. The market is off a bit this morning, reversing some of the moves from last week. The FOMC held its July meeting that concluded last Wednesday and, as expected, the Fed kept rates unchanged but acknowledged the slowing economic recovery and emphasized their need to maintain an accommodative stance. Not helping matters, the temporary weekly $600 federal unemployment benefit expired last week with no replacement agreed upon. The GOP unveiled their proposed stimulus bill last week but the two parties appear to be far apart on an agreement. Spreads on agency bullets were largely unchanged while callable spreads were mixed. This week there are multiple economic data releases and several Fed speakers on the tape, but the highlight comes on Friday with the July jobs report.
Spreads on agency bullets were mostly unchanged last week while callable spreads were all over the board. Callable issues with 2-year maturities tightened by 2 basis points. Spreads on 3- and 5-year maturities widened by roughly 3 to 5 basis points for most structures, while 10-year callables tightened by roughly 6 basis points. Many Vining Sparks customers continue to buy securities with longer maturities than was typical in the past, stretching out beyond the 5-year part of the curve to try to pick up additional yield. With last week’s Treasury rally, the shortest maturity with a 1.00% yield has extended out to around the 8-year part of the curve. The most relative value for both bullets and callables appears to be in the 6-year part of the curve where spreads begin to widen meaningfully.
The following table reflects last week’s total issuance and call activity across the primary GSE issuers. Total issuance increased to $17.2 billion while call volume declined slightly to $5.7 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 passed on its issuance slot but this morning announced a 10-year Benchmark note. The size of the deal is unknown, and it has not priced yet, but price talk is in the +42 area. There are no other major issuance slots scheduled for this week. The Federal Home Loan Bank has an issuance slot next Wednesday.
Senior Vice President, Investment Strategies
Vining Sparks IBG, LP