July 12, 2021
Bond yields continued to push lower last week, although many market watchers were left questioning the exact reasons as to why. Amid surging COVID-19 cases, on Thursday Japan declared a state of emergency, and Olympics organizers followed suit by announcing that spectators will be prohibited from attending the Games later this month. The market reaction felt similar to last year when professional sports leagues began canceling or postponing events at the onset of the pandemic, triggering a massive flight-to-quality. The moves last week, however, were much less dramatic. The 10-year Treasury yield bottomed on Thursday at 1.25% before bouncing near the 200-day moving average to end Friday at 1.36%, down 7 basis points from the prior week. The yield on the 5-year note fell below 75 basis points before ending the week at 0.79%. Spreads on agency bullets were mostly unchanged while callables widened with the market rally. This week’s calendar is relatively light, with highlights including the June CPI print tomorrow, Fed Chair Jay Powell testifies before Congress on Wednesday, and the June retail sales release comes on Friday.
Agency bullets continue to trade at all-time tight spreads across the curve. As mentioned in this space previously, the pickup in yield for agency bullets out to 5-year maturities is approximately 0 to 1 basis point over Treasurys. Spreads on 10-year bullets were unchanged last week at approximately +5 to Treasury notes. With bullets trading so tight, the Vining Sparks trade desk continues to move an outsized amount of Treasurys. However, with the market rally last week, most buyers remained on the sidelines, with some sellers coming to market to take profits in what looked to be overbought market conditions. Agency callables widened on the week, with most 5- and 10-year maturities widening by 2 basis points, and 15-year callables widened by 4 basis points. With the belly of the curve holding in a bit better than the long end, most customer purchases focused on the 3- to 6-year part of the curve last week.
The following table reflects last week’s total issuance and call activity across the primary GSE issuers. Total issuance declined to to $0.6 billion while call volume fell to $2.6 billion. For specific call dates and amounts for individual bond portfolios, be sure to log in to the Client Portal on the Vining Sparks website.
Last week the Federal Home Loan Bank passed on its Global slot. Fannie Mae has a Benchmark slot this Wednesday, July 14th. Freddie Mac has a Reference issuance date this Wednesday, June 30th. The Federal Home Loan Bank has another Global slot next Monday, July 19th.
Senior Vice President, Investment Strategies
Vining Sparks IBG, LP