Agency Update

July 13, 2020

With few economic data releases on the docket last week, the market largely traded off the latest coronavirus news.  And with nearly all of it negative here in the U.S. and multiple states seeing cases spiking, it is no surprise that Treasury yields generally moved lower in response.  Sovereign debt yields with maturities out to 7 years hit all-time lows on Friday morning before the market sold off later in the session.  Both agency bullets and callables mostly tightened on the week.  This week’s economic calendar is much more active, highlighted by the June retail sales release on Thursday.  Corporate earnings season also kicks off this week, and the market should be particularly interested in the forward guidance after what will likely be a historically poor second quarter for many companies.

Agency bullets continued their tightening streak last week and spreads for 5- to 10-year maturities declined by 2 to 3 basis points.  Callables also mostly tightened last week, with most tenors and structures out to 10-year maturities tightening by 1 to 2 basis points.  Longer 15-year maturities widened by several basis points.  As can be seen in the graphs below, agency paper has tightened considerably since the market disruptions in the first quarter but spreads have been largely rangebound over the last couple of months.  Because absolute yields have fallen to such low levels, many customers have been investing out longer on the curve to pick up additional yield.

The following table reflects last week’s total issuance and call activity across the primary GSE issuers.  Total issuance declined to $3.2 billion and call volume increased to $12.3 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.

Last week Fannie Mae announced a new $7 billion 3-year Benchmark issue that priced at +14, its first Benchmark issue since May.  The Federal Home Loan Bank has an announcement slot this Wednesday with another one scheduled for next Thursday.  Freddie Mac also has Reference note issuance date next Tuesday.

Daniel Anderson

Senior Vice President, Investment Strategies

Vining Sparks IBG, LP

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