Agency Update

January 3, 2022

It was a relatively benign week in the financial markets between Christmas and New Year’s, and Treasury yields were little changed beyond the front of the yield curve.  The 1-year term saw the biggest rise, ending the week 11 basis points higher at its highest level since March 2020.  Beyond the 2-year note, which increased by 4 basis points to 0.73%, sovereign yields increased by a couple of basis points beyond the 3-year note, which declined on the week.  On Tuesday the 2s-to-10s spread fell to 73 basis points, marking its flattest level since November 2020.  The 10-year did manage to break above 1.50%, which has been difficult to hold since late November.  Bonds are selling off meaningfully to kick off 2022, with 2- to 10-year notes up 6 to 9 basis points as of this writing.  The 10-year is trading at 1.60%, the highest it has been in 6 weeks.

Agency bullets tightened by a basis point or two last week after finally widening out a bit in the past month.  Callables also tightened but mostly in the 10- and 15-year portions of the yield curve.  There is plenty for the market to sift through this week with both ISM reports to be released, the December FOMC meeting minutes on Wednesday, and then the December jobs report to end the week.  Street consensus is that payroll growth gets back on pace after a disappointing November report.

Spreads on agency bullets tightened to end the year.  Bullets with 5-year terms had widened out to +3 to Treasurys in December but last week tightened back in to ~1-basis point spreads.  Bullets further out the curve were unchanged, with 10-year notes still trading at ~18-basis point spreads.  Callables on the front end were unchanged but 10- and 15-year terms tightened by approximately 2 basis points.

The following table reflects last week’s total issuance and call activity across the primary GSE issuers.  Total issuance nearly increased to $7.3 billion while call volume was paltry at only $75 million last week.  For specific call dates and amounts for individual bond portfolios, be sure to log in to the Client Portal on the Vining Sparks website.

There were no major issuance dates scheduled for last week.  Freddie Mac has its first Reference note issuance date tomorrow, January 4th.  The Federal Home Loan Bank has a Global issuance slot scheduled for this Wednesday, January 5th.  Fannie Mae follows up next week with its first Benchmark slot of the New Year next Wednesday, January 12th.

Daniel Anderson

Senior Vice President, Investment Strategies

Vining Sparks

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