June 29, 2020
It was another relatively quiet week last week as the market largely focused its attention on accelerating coronavirus counts in hot spots around the country. States like Texas and Florida have even been forced to roll back some business reopenings given the worsening virus data. Unsurprisingly, a risk-off tone set in that sent stocks lower while Treasurys rallied, with government debt yields ending the week lower by 2 to 5 basis points for maturities of 2 to 10 years. Certain agency bullet maturities widened while callables mostly tightened. Despite the early close this Thursday and market holiday on Friday, this week should be quite active. The market will digest several Fed members scheduled to speak, numerous economic data releases, the June FOMC meeting minutes due out Wednesday, and the much-anticipated jobs report on Thursday.
Agency bullet spreads widened marginally last week but only in the 2- to 3-year part of the curve, reversing the tightening moves for those maturities from the previous week. Agency callable spreads were little changed on the front end of the curve while 5- to 10-year maturities continued to tighten by several basis points. The shortest maturity at a 1.00% yield remains in the 7-year part of the curve, and investors must extend out to roughly 12-year maturities to hit a 1.50% yield for the least structured callables. Internal activity last week involved customer purchases across the curve, with more trades in the 8- to 9-year part of the curve than usual.
The following table reflects last week’s total issuance and call activity across the primary GSE issuers. Total issuance fell to $6.3 billion and call volume also declined to $6.9 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 FHLB passed on its issuance slot while Freddie Mac announced a $5 billion 3-year Reference note that priced at +14. There are no major issuance dates scheduled for this holiday-shortened week. Fannie Mae has its upcoming Benchmark slot next Wednesday.
Senior Vice President, Investment Strategies
Vining Sparks IBG, LP