August 31, 2020
The front end of the Treasury curve was basically unchanged on the week while the long end of the curve moved meaningfully higher, pushing the 2s-to-10s spread to its widest level since the beginning of June. Much of the curve steepening occurred late in the week following Fed Chair Jay Powell’s speech at the virtual Jackson Hole symposium, in which he outlined a shift in Fed policy where the FOMC will target average rather than absolute inflation going forward. Agency bullets were mixed on the week while callables tightened on the longer end of the curve. This week several Fed governors are scheduled to speak, which will likely help the market glean more details on the FOMC’s new monetary policy framework. Additionally, there are numerous economic data releases on the calendar, but the highlight this week comes Friday when the August jobs report is released.
Agency bullets tightened slightly on the front end of the curve while widening by a basis point or two for maturities of 5 to 10 years. Callables were very little changed for shorter maturities, wider for 8- to 9-year maturities, and largely tighter for maturities of 10 to 15 years. Internal activity remained high last week but it did slow down somewhat compared to the amount of bonds traded in the first few weeks of the month. Given that the Treasury curve begins to steepen more significantly past the 5-year mark, which is where spreads on agency paper begin to increasingly widen out, agencies in the 6- to 9-year part of the curve appear to have the most relative value at the moment.
The following table reflects last week’s total issuance and call activity across the primary GSE issuers. Total issuance declined marginally to $13.8 billion while call volume fell to $3.7 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 announced a $4.5 billion 5-year Benchmark note that printed at +18. This week Freddie Mac has an issuance slot on Wednesday, and next Wednesday the Federal Home Loan Bank has a Global issuance date.
Senior Vice President, Investment Strategies
Vining Sparks IBG, LP