January 4, 2021
During what is typically an extremely quiet week, the bond market proved to be just that last week and Treasury yields ended the shortened trading session on Thursday hardly changed from Christmas Eve the week prior. The yield on the bellwether 10-year note ended the year at 0.93%, almost exactly a full 100 basis points lower than the year before. Given the continued reiteration of the Fed’s forward guidance (often simplified as “lower for longer”), the front end of the yield curve remains anchored near zero out to approximately 3 years. Last week agency bullets tightened marginally for longer maturities while callables were little changed. This week’s economic calendar is quite busy, and the events that likely have the biggest market-moving potential are the two Senate runoffs in Georgia on Tuesday. The market is expecting the GOP to win at least one, which would mean retaining the Senate for the next two years; should the Democrats pick up both seats, expect some volatility. There are also several data releases and Fed speakers scheduled to speak but the other highlight of the week comes on Friday with the December jobs report.
Agency bullets largely moved in line with Treasurys on the very front end of the curve last week while tightening by a basis point on 5- and 10-year finals. Callable spreads were also little changed last week, and as highlighted in the graphs below, spreads have steadily grinded tighter since the end of April. Spreads on both bullets and callables ended last week at the tightest levels of the year. Despite the quiet week, the Vining Sparks trade desk remained steady with solid reverse inquiry business. Supply is very thing in agency bullets right now and spreads are not expected to widen over the near term. For portfolio managers looking to begin the year ahead of budget, bullets continue to make for ideal sale candidates.
The following table reflects last week’s total issuance and call activity across the primary GSE issuers. Total issuance was $5.1 billion while call volume was light at $1.8 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.
There were no major issuance dates for the primary GSE’s last week. Freddie Mac will kick off the year with a Reference note slot this Wednesday, January 6th. Fannie Mae has its first Benchmark slot of the year next Wednesday, January 13th.
Senior Vice President, Investment Strategies
Vining Sparks IBG, LP