December 2, 2019
Treasurys were little changed on the holiday-shortened week, with yields mixed on the front-end and up only marginally on the longer-end of the curve. Treasury yields are up more significantly this morning and the yield curve has steepened somewhat, with longer-term yields now at the highest levels since mid-November. The slope between 2- and 10-year Treasurys is also now back above 20 basis points after flattening in recent weeks. Agency spreads and yields were little changed last week.
Bullets continue to trade near the tightest spreads since May. For portfolio managers looking for attractive sale candidates approaching year-end, agency bullets would certainly fit the bill. It would not be surprising to see a pickup in cross-sector swaps over the coming weeks. Callables still appear to be relatively rich—some callable paper has tightened by 30 basis points or more in only a matter of months. See below charts for yields and spreads on less structured 3-year and 5-year callables. Spreads remain at basically the tightest levels since early to mid-2018 for nearly all tenors and call structures. There are some exceptions, however; as mentioned last week, callables with maturities in the 7- to 8-year range with 1-year call lockouts still look to be the most attractive purchase candidates in this sector.
The below table reflects last week’s total issuance and call activity across the primary GSE issuers. Call volume declined to $3.2 billion last week, but callable owners can likely continue to expect elevated call volume in their higher-coupon issues over the near term. Total agency issuance volume was high last week at $9.5 billion.
Last week the Federal Home Loan Bank elected to pass on its Global issuance slot and did the same thing again today. Fannie Mae has its final issuance date of the year this Wednesday. There are no major announcement dates next week, and Freddie Mac and the Federal Home Loan Bank have their final 2019 issuance slots the following week.
Senior Vice President, Investment Strategies
Vining Sparks IBG, LP