March 22, 2021
For the 7th consecutive week bonds continued to sell off, particularly on Thursday in reaction to the dovish Fed meeting that concluded the day before. The Fed revised their growth, employment, and inflation projections higher, yet they continue to anticipate no rate hikes until at least 2023. The yield curve moved higher in a steeper fashion with yields mostly unchanged out to 3 years while longer tenors sold off. The 10-year yield ended the week 9 basis points higher at 1.72%, and the 5-year yield increased by 4 basis points to 0.88%. The curve as measured by 2s-to-10s increased to 157 basis points, its steepest level since summer of 2015. Agency bullets tightened versus Treasurys while callables widened for longer maturities. This week’s calendar is rather data-heavy but the market will likely pay more attention to the messaging from numerous Fed governors scheduled to speak, including Jay Powell’s 3 speeches slated for the front half of this week.
Last week agency bullets managed to tighten further where possible. Bullets now pick up essentially no spread to sovereign notes out to 3 years. Bullets in the 10-year part of the curve tightened by another basis point and are now offered +5 to Treasurys, once again a new record. Because of the tight spreads in bullets, the Vining Sparks trade desk has been moving much more Treasury paper than average, mostly off-the-run notes with intermediate maturities. Callable spreads were little changed on the front end of the curve while most 10-year structures widened by approximately 7 basis points. Last week was a very active week for bond buyers and the demand was robust across the curve, with nearly 70% of the volume occurring in the 4- to 10-year portion of the curve.
The following table reflects last week’s total issuance and call activity across the primary GSE issuers. Total issuance increased to $13.1 billion while total call volume declined to $2.3 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 Federal Home Loan Bank announced a $1 billion 2-year Global note that priced at +2.5. The FHLB has another issuance slot this Wednesday, the 24th. Freddie Mac has a Reference note issuance date next Monday, March 29th.
Senior Vice President, Investment Strategies
Vining Sparks IBG, LP