Agency Update

February 3, 2020



The strong rally in Treasurys resumed last week on continued fears over the global spread of coronavirus and its impact on the broader economy.  Sovereign debt yields declined a further 18 to 19 basis points last week for maturities of 2 to 10 years.  The yield curve has re-inverted, with 3-month T-bills trading at yields slightly above 10-year notes, further stoking recession fears.  The market is now fully pricing in a 25 basis point Fed rate cut in the latter half of this year.  Agency bullets largely moved in line with Treasurys, while callables widened.



Agency bullet spreads remain tight but are trading marginally wider than levels from two weeks ago.  Callable agencies also widened last week, unsurprising given the volatility.  As can be seen in the charts below, bullet spreads are still near the tightest spreads of the last several years and, with the greater bond market rally, currently make for excellent sale candidates.



The following table reflects last week’s total issuance and call activity across the primary GSE issuers.  Both call and issuance volume remained elevated last week at over $7 billion each.  Callable owners can likely continue to expect elevated call volume in their higher coupon issues over the near term.



Freddie Mac passed on its issuance slot last Tuesday, its second issuance date to pass on this year, and the GSE has not announced a new Reference note since June 2018.  The FHLB has a Global issuance date this Tuesday, February 4th.  Freddie Mac has another issuance slot next Wednesday.








Daniel Anderson

Senior Vice President, Investment Strategies

Vining Sparks IBG, LP

INTENDED FOR INSTITUTIONAL INVESTORS ONLY.
The information included herein has been obtained from sources deemed reliable, but it is not in any way guaranteed, and it, together with any opinions expressed, is subject to change at any time. Any and all details offered in this publication are preliminary and are therefore subject to change at any time. This has been prepared for general information purposes only and does not consider the specific investment objectives, financial situation and particular needs of any individual or institution. This information is, by its very nature, incomplete and specifically lacks information critical to making final investment decisions. Investors should seek financial advice as to the appropriateness of investing in any securities or investment strategies mentioned or recommended. The accuracy of the financial projections is dependent on the occurrence of future events which cannot be assured; therefore, the actual results achieved during the projection period may vary from the projections. The firm may have positions, long or short, in any or all securities mentioned. Member FINRA/SIPC.
Copyright © 2021
Member FINRA/SIPC
This is a publication of Vining-Sparks IBG, L.P.
775 Ridge Lake Blvd., Memphis, TN 38120