June 22, 2020
The market took a bit of a breather last week after the turbulent week before. Treasury yields stayed in a very tight trading range and were nearly unchanged week-over-week, with the curve pushing lower by little more than a basis point. Although retail sales for May came in much higher than expected, the rest of the economic data released last week was less uplifting. With multiple states reporting record daily increases in positive cases, fear of a second wave of coronavirus continues to weigh on any risk-on sentiment. Agency bullets and callables tightened modestly. This week brings a plethora of economic data for the market to digest, highlighted by multiple regional Fed indices, new and used home sales, and the May personal income and spending report on Friday.
Agency bullet spreads mostly tightened last week, particularly in the 2- to 3-year part of the curve. Agency callables also tightened but mostly in the 5- to 10-year section of the yield curve. Although, for example, 5-year callables with various call structures tightened by approximately 6 basis points last week, spreads in the sector remain wider year-to-date. The shortest maturity for callables with 1.00% yields still falls somewhere in the 6- to 7-year part of the curve. Activity last week was mostly outright purchases by customers—call volume remains brisk and most depositories right now appear to be flush with liquidity.
The following table reflects last week’s total issuance and call activity across the primary GSE issuers. Total issuance fell to $7.6 billion while call volume increased to $9.5 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 Fannie Mae announced a $5 billion 5-year Benchmark that printed at +20 to Treasurys. This morning the FHLB passed on its global issuance slot. Freddie Mac has a Reference note issuance date this Wednesday. There are no major issuance dates scheduled for next week.
Senior Vice President, Investment Strategies
Vining Sparks IBG, LP