Agency Update

June 28, 2021

It was another relatively bumpy week in the bond market with an abundance of Fed commentary to analyze.  At this point, most Fed officials believe that hotter inflation will likely prove to be transitory while acknowledging that risks to the upside have materialized.  Bond yields started the week lower but pushed higher throughout the week, with the 5-year yield closing Friday up 5 basis points to 0.92%.  The bellwether 10-year yield increased by 9 basis points to 1.53%.  On Thursday it was announced that the White House and a group of bipartisan Senators had come to an agreement on a traditional infrastructure deal, yet the market reaction was decidedly muted.  The Treasury curve is somewhat flatter this morning with yields down 3 to 5 basis points for 5- to 10-year maturities.  Agency bullets and callables both tightened on the week, with the biggest moves occurring on the longer end of the curve.  This week’s calendar features a handful of economic data releases, but the highlight comes on Friday morning with the June jobs report before the market closes early for the Independence Day holiday.

Agency bullets continue to trade near the tightest spreads on record, and last week bullets somehow managed to tighten even further (where possible).  Bullets out to 5-year maturities now trade at basically zero spreads, while 10-year bullets tightened by a basis point and are now offered at approximately +5 to sovereign debt.  The Vining Sparks trade desk continues to move a meaningful amount of Treasury paper to those looking for bullet structures.  Agency callable spreads also declined on the week, with most structures 5 years and out tightening by a basis point or two.  Most customer purchases are still in the 3- to 7-year part of the curve as they have been most of this year.

The following table reflects last week’s total issuance and call activity across the primary GSE issuers.  Total issuance declined to to $3.0 billion while call volume fell to $4.8 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.

Last week Fannie Mae passed on its Benchmark slot.  Freddie Mac has a Reference issuance date this Wednesday, June 30th.  The Federal Home Loan Bank has its next Global slot next Thursday, July 8th.

Daniel Anderson

Senior Vice President, Investment Strategies

Vining Sparks IBG, LP

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