Agency Update

July 19, 2021

Bond yields pushed lower for a third consecutive week despite the relatively firm economic data and the fastest inflation print in more than a dozen years.  The highly contagious Delta variant continues to spread and is now the predominant strain in the U.S., adding to the jittery tone and risk-off market moves.  The closely watched 10-year Treasury yield closed the week at 1.29%, down 7 basis points and its lowest weekly close since February.  The 5-year yield declined by only a basis point to 0.78%.  The moves last week seem tame compared to what’s happening in the market this morning, with the 10-year down another 9 basis points to 1.20% and 5s down 7 basis points to 0.70%.  For those keeping an eye on technical indicators, the 10-year Treasury yield is now below its 200-day moving average for the first time since November.  Last week spreads on agency bullets moved modestly wider while callables widened by several basis points on the longer end of the curve.  This week’s calendar is another light one, with several housing reports scheduled and corporate earnings announcements throughout, but market participants appear to be most acutely focused on the COVID-19 outlook and its implications for the economy going forward.

Agency bullet spreads remain near the all-time lows but 5- and 10-year maturities widened by approximately a basis point last week.  With bullets trading at such tight levels, the Vining Sparks trade desk continues to move an outsized amount of Treasurys, although that trade has slowed with the bond market rally in recent weeks.  Agency callables widened on the week, partially offsetting the moves lower in Treasury yields.  Most 10- and 15-year structures widened by approximately 3 basis points.  As can be seen in the graphs below, 3- and 5-year callables continue to trade near the same levels of the past several months.

The following table reflects last week’s total issuance and call activity across the primary GSE issuers.  Total issuance increased to $4.6 billion and call volume increased to $6.6 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 Fannie Mae passed on its Benchmark slot last week but has another one this Wednesday, July 19th.  As expected, the Federal Home Loan Bank passed on its Global slot this morning.  Freddie Mac has its only Reference issuance date of July next Thursday, July 29th.

Daniel Anderson

Senior Vice President, Investment Strategies

Vining Sparks IBG, LP

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