March 1, 2021
It was a wild week in the bond market and Treasury yields ended Friday considerably higher, particularly in the belly of the curve. The market was already selling off a bit heading into the 7-year auction on Thursday, which ended up being the weakest auction in the history of the 7-year note, and Treasurys across the curve sold off in sympathy. The 5-year note ended Friday at 0.73%, up 16 basis points from the week before and up 24 basis points in only two weeks. The 10-year broke above 1.50% intraweek (and even touched 1.60% on Thursday) but closed Friday up 7 basis points at 1.41%. Much of the rate moves were due to strengthening economic data combined with increasing market fears about rising inflation given the improving pandemic outlook yet still additional stimulus funds being approved by Congress. Agency bullets largely moved in line with Treasury notes while callables widened. So far this morning, with both bonds and stocks rallying, the market seems to be mostly shaking off the moves from last week. This week’s calendar is another busy one with several Fed speakers on the tape, the ISM releases today (manufacturing) and Wednesday (services), and the much-anticipated February jobs report on Friday.
Last week agency bullet spreads were mostly unchanged, and bullets remain at all-time tights across the curve. Demand for bullets remains strong but, given the limited supply and tight spreads, many portfolio managers have turned to Treasurys instead. Callables widened meaningfully with the backup and spreads for 3- to 10-year finals increased by roughly 5 basis points regardless of structure. Last week, given the recent bond market selloff, the Vining Sparks trade desk moved a lot of discount callables plus new issues coming with coupons not seen in the better part of a year. As highlighted below, 5-year callables now yield close to 1.00% for the first time since last spring.
The following table reflects last week’s total issuance and call activity across the primary GSE issuers. Total issuance surged to $20.8 billion while call volume fell to $3.1 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 passed on its Benchmark slot and has another issuance date coming this Wednesday. Freddie Mac has a Reference note slot next Tuesday, March 9th.
Senior Vice President, Investment Strategies
Vining Sparks IBG, LP