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

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