June 7, 2021
Treasury yields were largely steady on the week until the May jobs report Friday, which came in below expectations for a second consecutive month, sending sovereign yields to the lower end of the recent trading range. The 10-year Treasury yield fell by 4 basis points to 1.56%, the lowest weekly close since April. The 5-year fell by 2 basis points to 0.78%, while the front end of the curve was mostly unchanged. The second consecutive disappointing jobs report appears to be solid evidence for the market that the return to full employment will likely take longer than many expected only months ago. Agency bullet spreads have mostly been unchanged for months and appear to be near their floor. Callable spreads were largely unchanged, widening slightly on the longer end of the curve. The calendar is a bit lighter this week and the highlight comes Thursday with the release of the latest CPI data. Many market participants are likely looking past this week to the June FOMC meeting that concludes next Wednesday.
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 practically unchanged on the week, with only 15-year paper widening by about a basis point. 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 $2.3 billion and call volume totaled $4.2 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.
After passing on all but one of its previous Global slots, the FHLB announced a new $1.0 billion 2-year global that printed at +1.5 on Thursday. Fannie Mae has a Benchmark slot next Wednesday, June 9th.
Senior Vice President, Investment Strategies
Vining Sparks IBG, LP