Agency Update

January 6, 2020

What many investors likely presumed would be a quiet, holiday-shortened week turned decidedly turbulent with the news of a U.S. airstrike in Baghdad that killed a top Iranian commander.  Additionally, on the economic data front, the largely positive housing data was overshadowed by the disappointing ISM manufacturing print, its weakest in a decade.  Treasurys rallied sharply at the end of the week and yields ended the day Friday down 6 to 9 basis points from the previous week.  Agency bullets mostly moved in line with Treasurys.  The market turns this week to the ISM non-manufacturing release on Tuesday and the December jobs report on Friday, along with any developments that occur regarding geopolitical tensions.

Agency bullet spreads were little changed, while agency callables largely widened versus Treasurys.  As mentioned throughout much of December, agency bullets remain attractive sale candidates given spreads remain at the tightest levels in nearly a year.  Portfolio managers can take advantage by doing portfolio extension swaps or simply sell to fund loan demand.  Callables now look marginally more attractive but spreads remain on the tighter end of the range of the past year, as highlighted in the charts below.  Most of the relative value in callables still appears to be for maturities beyond 5 years.

The following table reflects last week’s total issuance and call activity across the primary GSE issuers.  Call volume remained elevated at nearly $7 billion, and callable owners can likely continue to expect elevated call volume in their higher coupon issues over the near term.  Total agency issuance volume was over $4 billion.

There were no major issuance dates last week.  Fannie Mae has two Benchmark note issuance slots this week to kick of the year, the first tomorrow, January 7th, followed by another on Thursday.  Freddie Mac has its first issuance date next Wednesday, January 15th.  The FHLB has an issuance slot the following Monday.

Daniel Anderson

Senior Vice President, Investment Strategies

Vining Sparks IBG, LP

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