Agency Update

July 20, 2020

The bond market was relatively docile last week and Treasury yields moved lower by 1 to 2 basis points for maturities of 2 to 10 years.  Spreads on agency bullets and callables were both little changed on the week.  While the Dow and S&P 500 were both up on the week, Treasury yields across the curve flirted with all-time lows.  The bulk of the economic data showed evidence of a slowing recovery and coronavirus cases continue to flare up across the sunbelt.  Investors right now must weigh the effects of a worsening health crisis with news that early vaccine trials show encouraging results.  This week’s economic calendar is relatively light but corporate earnings season continues after mostly large banks reported second quarter results last week, and the market will then turn its attention to the July Fed meeting next week.

Agency bullets moved in lockstep with Treasurys and callables widened marginally on the long end of the curve.  Longer 15-year maturities continued their widening streak and spreads moved higher by a couple of basis points.  The bulk of the internal activity continued to center around depositories extending out on the steeper portion of the curve to pick up additional yield, specifically in 6- to 10-year maturities (and in some cases even longer).  That appears to be a common thread across the bulk of the trade desk—as absolute yields have fallen to such extreme lows, many portfolio managers are extending out into longer maturities on new purchases to help offset earnings pressures.

The following table reflects last week’s total issuance and call activity across the primary GSE issuers.  Total issuance more than doubled to $8.5 billion while call volume was halved to $6.2 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 the Federal Home Loan Bank passed on its Global issuance slot and has another announcement date this Thursday.  Freddie Mac also has Reference note issuance date tomorrow (Tuesday).  Fannie Mae has an issuance announcement date next Wednesday.

Daniel Anderson

Senior Vice President, Investment Strategies

Vining Sparks IBG, LP

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