Agency Update

August 9, 2021

Last week was a bit of a bumpy one in the bond market.  Yields started out lower in response to disappointing economic data, only to shoot higher following a record ISM Services reading and the very strong jobs report on Friday.  The 10-year yield finished the week at 1.30%, up 8 basis points to its highest weekly closing level in a month.  The yield on 3- and 5-year notes likewise increased 7-8 basis points.  Agency bullets and callables both widened on the week.  Investors remain keenly attuned to the latest COVID-19 case data, and while the current 4th wave in the U.S. has yet to roll over, the Institute for Health Metrics and Evaluation (IHME) Covid-19 model currently projects a near-term peak in cases to come this week.   This week’s calendar looks quite a bit lighter, and the highlight comes Wednesday with the latest CPI data.

Agency bullets widened last week by approximately a basis point out to 5-year maturities and by two basis points in the 10-year area of the curve.  While still near all-time tight spreads, agency bullets are now trading at the widest spreads since February.  Agency callables also widened out a bit last week, with 5- to 15-year maturities widening by approximately 3 basis points.  As can be seen in the graphs below, yields on 3- and 5-year callables have been practically unchanged for months, despite changes in Treasury yields.  Last week was a busier one on the Vining Sparks trade desk, particularly the latter half of the week given the bond market selloff.  Buyers continue to target the belly of the curve, with the most purchase activity concentrated in 3- to 6-year maturities.

The following table reflects last week’s total issuance and call activity across the primary GSE issuers.  Total issuance dropped to $1.6 billion while call volume was flat at $2.3 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 Fannie Mae passed on its Benchmark slot.  This week the Federal Home Loan Bank has an issuance slot tomorrow (Tuesday), and Freddie Mac has a Reference note announcement date on Thursday.  Freddie Mac has another issuance date next Wednesday.

Daniel Anderson

Senior Vice President, Investment Strategies

Vining Sparks IBG, LP

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