Agency Update

June 15, 2020

Treasury yields for 2-year maturities fell by 2 basis points week-over-week, the 5-year declined by 14 basis points, and the 10-year fell by 19 basis points.  The market moves pushed the 2s-to-10s spread back down to 0.51%, basically the same curve steepness as all of May.  Agency bullet spreads were mixed on the week while callables mostly widened.

Agency bullet spreads were mixed last week, as both shorter and longer maturities tightened while maturities with 2- to 3-year maturities widened.  Agency callables widened across the curve and the biggest moves occurred in 5-year terms, as most structures for that maturity traded wider by approximately 8 basis points.  Following last week’s bond rally investors must extend back out to the 7-year part of the curve to hit a 1.00% yield on new production callables.  Despite the rally, some callables continue to trade at discount prices and that has been a poplar trade of late.

The following table reflects last week’s total issuance and call activity across the primary GSE issuers.  Total issuance increased to $8.3 billion while call volume declined to $7.3 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 announced a new $1 billion 2-year Global issue that printed at +8.  This Wednesday Fannie Mae has its next Benchmark issuance slot, and next Monday the FHLB has another global issuance slot.  Freddie Mac also has a Reference note issuance date next Wednesday.

Daniel Anderson

Senior Vice President, Investment Strategies

Vining Sparks IBG, LP

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