January 19, 2021
Bonds rallied and stocks sold off on the week as investors digested the weaker economic releases alongside President-elect Biden’s rather sizable pandemic relief plans. Given the Democrats’ slim edge in the Senate, passage of a nearly $2 trillion stimulus package following last month’s $900+ billion bill should prove challenging. After spiking higher the week before, the yield on the 10-year note declined 3 basis points and ended the Friday session at 1.08%. The 5-year note also fell 3 basis points to 0.45% after hitting 0.53% intraweek. Both agency bullets and callables continued to tighten. Outside of a few housing reports and the weekly initial jobs data, this week’s economic calendar is fairly quiet and mostly involves corporate earnings reports. Two weeks after the chaos at the Capitol, Joe Biden will be inaugurated as the 46th President on Wednesday amidst hopefully much more peaceful surroundings.
Agency bullets tightened further on the combination of still high demand and thin supply. Bullets are essentially trading on top of Treasurys out to 2-year maturities, and bullets are now at all-time tight spreads across the entire curve. Owners of large-issue bullets like Benchmark and Reference notes will have a hard time getting a better bid than now. Callables also continued to tighten last week, with spreads declining by a basis point or two for most structures and tenors. With the curve steepening seen in the last couple of weeks, agency step-up issuance has increased of late, and there was solid demand among Vining Sparks’s customers for 5- to 15-year maturities.
The following table reflects last week’s total issuance and call activity across the primary GSE issuers. Total issuance increased to $6.5 billion while call volume picked up to $4.7 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.
Fannie Mae passed on its first Benchmark note slot of the year last week. The Federal Home Loan Bank has a Global issuance date this Wednesday, January 20th. To round out the month, Freddie Mac has its next Reference note issuance date next Thursday.
Senior Vice President, Investment Strategies
Vining Sparks IBG, LP