Agency Update

February 28, 2022

Despite the geopolitical turmoil in Europe last week, bond yields managed to push higher, with 2-year yields ending the Friday session up 10 basis points from the week before and the 10-year higher by 3 basis points.  However, the bump in Treasury yields has so far been short lived as bonds are rallying hard to start the week, reversing last week’s moves as of Monday morning.  Market consensus has not yet changed that the FOMC will hike overnight rates by a quarter-point at their meeting in two weeks, with further rate increases still priced into the market for the rest of the year. The January PCE index was released last week showing continued price pressures, with core PCE increasing by 5.2% year-over-year, so it seems that the Fed has little option besides normalizing monetary policy.

Agency bullet spreads were unchanged last week while callables widened—no huge surprise given the recent heightened volatility.  There are a lot of economic data releases this week but the biggest one comes Friday with the February jobs report.  The market currently expects another solid report with 400k jobs added.  Market participants will be keenly attuned to whether the tensions in Europe get resolved soon, which would obviously bring some calm back to the market.  Should Russia suffer a significant financial crisis because of their military actions and the West’s ensuing sanctions, all bets are off as to the ripple effects that could be felt in the U.S.

Agency bullet spreads were unchanged on the week while callables widened out moderately.  Callables widened by 3 to 4 basis points for most 3- and 5-year terms, while 10-year finals widened by 5 basis points.  As is apparent by looking at the charts below, bond yields have continued their nearly relentless surge higher this year, at least through last week.  It remains to be seen whether geopolitical events abroad can pause or reverse this increase in yields.

The following table reflects last week’s total issuance across the primary GSE issuers.  Total issuance increased to $4.6 billion while there were no agency call announcements.  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 the Federal Home Loan Bank passed on its Global issuance slot.  Freddie Mac has a Reference note announcement date this Wednesday, March 2nd, but it has been quite some time since they announced a major bullet issuance.  The Federal Home Loan Bank follows up with another Global slot next Wednesday, March 9th.

Daniel Anderson

Senior Vice President, Investment Strategies

Vining Sparks

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