March 29, 2021
The prolonged selloff in Treasurys finally took a breather last week after 7 consecutive weeks of yield increases and curve steepening. The 10-year yield declined 4 basis points on the week to 1.68% while the 5-year yield fell by 1 basis point to 0.87%. Much of the economic data from February released last week came in a bit weaker than expected, some of which was weather-related. Investors were likely more interested in the many Fed speakers on the tape last week, and the group continues to reiterate Chair Powell’s messaging from the March FOMC meeting: they are not concerned with an inflation overshoot at this point, and monetary policy will remain accommodative until their goals on the jobs front have been met. Agency bullets mostly moved in line with Treasurys while callable spreads were mixed. The highlight on the calendar this week is the March jobs report on Good Friday. The market is expecting payroll growth to have accelerated further after the surprise jobs beat last month.
Agency bullet spreads were unchanged last week, and bullets continue to trade at the slimmest spreads on record. Bullets are practically flat to Treasurys out to 5 years. Bullets with 10-year maturities offer only a 5 basis point pickup over sovereign debt. Callables tightened by 1 or 2 basis points for 2- and 3-year maturities while 10- and 15-year callables widened by 2 to 4 basis points. Last week the trade desk was involved in numerous step-up deals as cushion callable alternatives. Regardless of structure, most of the purchases last week were in 5- to 7-year maturities, which continues to look like the most attractive portion of the curve.
The following table reflects last week’s total issuance and call activity across the primary GSE issuers. Total issuance dipped to $10.9 billion while total call volume increased to $2.5 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 passed on its Global slot after issuing a $1 billion 2-year note the previous week. Freddie Mac passed on its Reference note slot this morning and has yet to issue a large bullet deal this year. Fannie Mae has a Benchmark slot next Thursday, April 8th.
Senior Vice President, Investment Strategies
Vining Sparks IBG, LP