June 14, 2021
After moving sideways since the end of March, last week bond yields seem to have found a new direction—lower. But what is confounding many market participants is bond yields moving lower in the face of the hottest inflation prints in more than a decade. Little has changed in the agency sector, with bullet spreads still near all-time lows and callables on the long end of the curve moving marginally wider last week. All eyes now turn to the FOMC meeting that concludes this Wednesday. The market’s collective view on inflation expectations, and to what degree it proves to be “transitory,” will likely remain the key driver of Treasury yields over the near- to medium-term.
Agency bullets remain near the tightest spreads on record, with 5-year bullets offered near +1 basis point to Treasurys and 10-year bullets offered near +6. For this reason, the Vining Sparks trade desk continues to move a meaningful amount of Treasury paper to those looking for bullet structures. Agency callable spreads were unchanged on the shorter end of the curve, but 3 basis points wider for 10 and 15-year maturities. The bulk of the purchase activity continues to be in the “sweet spot” of the yield curve, with 4- to 7-year maturities. As can be seen in the graph below, 5-year callables continue to trade near 1.00%, just as they have since the beginning of March.
The following table reflects last week’s total issuance and call activity across the primary GSE issuers. Total issuance came in at $2.4 billion and call volume totaled $3.6 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.
Senior Vice President, Investment Strategies
Vining Sparks IBG, LP