June 1, 2020
Treasury yields remained rangebound and ended last week marginally lower, with the 5-year yield falling by 3 basis points while the rest of the curve fell by only a basis point at most. Economic data releases largely showed weak but improving activity, and the geopolitical news largely centered around escalating U.S.-China tensions. Agency bullet spreads mostly held steady while callables continued to tighten versus Treasurys. This week the major releases will again be the initial jobless and continuing claims numbers on Thursday, followed by what will likely be a historically bad jobs report on Friday. The market is expecting 8 million nonfarm payrolls to be lost in the month of May, resulting in the unemployment rate increasing to near 20%. With continuing jobless claims falling last week, the biggest question mark in the labor market will be how quickly additional laid off workers can return to their jobs.
For consecutive weeks agency bullets mostly moved in line with Treasurys, a rarity these days after bullets gradually tightened for more than a month. Agency callables, however, mostly did move tighter, with the largest moves seen on both the short and long ends of the curves. Callables with 2-year maturities and 6-month lockouts tightened by the most, while 5-year finals with various call structures actually widened by a basis point. For investors looking to hit a 1.00% yield target, buyers should look for callables in the 7-year part of the curve. As for 1.50%-type yields, those can be found in the 10- to 15-year part of the curve, depending on structure.
The following table reflects last week’s total issuance and call activity across the primary GSE issuers. Total issuance increased came in at $10.5 billion and call volume was lower at $6.3 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 the Federal Home Loan Bank passed on its Global issuance slot. Today Freddie Mac has an issuance slot but has not yet announced a new issue. Next Wednesday the FHLB has another issuance date.
Senior Vice President, Investment Strategies
Vining Sparks IBG, LP