Agency Update

January 11, 2021

The Democrats’ Senate victories in Georgia resulted in a major selloff in Treasurys, pushing yields meaningfully higher on any tenors beyond 2 years.  The yield on the 10-year note soared 20 basis points on the week, ending Friday at 1.12% and closing above 1.00% for the first time since the end of February.  The jobs report on Friday came out weaker than expected but the jobs print was not significant enough to sway the market from the Blue Wave narrative in Washington and the historic events at the Capitol building last Wednesday.  Both agency bullets and callables continued their relentless tightening trend.  There are a handful of economic releases scheduled for this week, highlighted by the November JOLTs report on Tuesday followed by December inflation, manufacturing, and retail sales numbers in the latter half of the week.  The market will likely remain focused on the fallout over the events at the Capitol complex last Wednesday, particularly the ramifications for the outgoing president.

Agency bullet spreads were largely unchanged on the front end of the curve but tightened by a couple of basis points in the 10-year part of the curve.  Bullets only have so much room left that they could tighten given that they are already at all-time tight spreads across most tenors.  Agency bullet owners can get a very strong bid should portfolio managers look to book gains or redeploy sale proceeds elsewhere to start the year.  Callable spreads were also little changed on shorter maturities last week but tightened by 6 and 12 basis points for most 10- and 15-year maturities, respectively.  The Vining Sparks trade desk was busy again last week, mostly moving cheaper FHLB and FFCB paper relative to FNMA and FHLMC.

The following table reflects last week’s total issuance and call activity across the primary GSE issuers.  Total issuance was $2.0 billion while call volume more than doubled to $4.1 billion.  Callable owners can continue to expect heavy call volume, and for specific dates and amounts, be sure to log in to the Client Portal on the Vining Sparks website.

Freddie Mac passed on its first Reference note slot of the year last week.  Fannie Mae has its first Benchmark slot of 2021 this Wednesday, January 13th.   The Federal Home Loan Bank has a Global issuance date next Wednesday, January 20th.

Daniel Anderson

Senior Vice President, Investment Strategies

Vining Sparks IBG, LP

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