Agency Update

March 8, 2021

It was another volatile week in the bond market and longer-term yields continued to push higher.  The 10-year yield reached 1.62% on Friday, its highest level since last February, before ending the week at 1.57%, up 16 basis points.  The 5-year note closed Friday’s session at 0.80%, up another 7 basis points for the week and higher by 34 basis points in just one month.  As expected, Congress approved the $1.9 trillion stimulus bill over the weekend and the House plans to vote tomorrow (Tuesday) to send the bill to President Biden’s desk by early next week.  Friday’s stronger-than-expected jobs report showed that the jobs recovery began to accelerate further after grinding to a near halt to end 2020.  Agency bullets mostly moved in line with Treasury notes while callables tightened modestly.  This week’s calendar is decidedly lighter than the last couple weeks, and with the Fed in a blackout period ahead of next week’s FOMC meeting, perhaps the market will stabilize a bit after such heightened volatility.

Last week agency bullet spreads were mostly unchanged, and bullets across the curve are trading near the tightest spreads on record.  As mentioned last week, given the limited supply in bullets and such tight spreads, many depository portfolio managers have turned to Treasurys instead.  Callables tightened by a couple of basis points on the front end of the curve after widening out the previous week.  As can be seen in the graph below, yields on 5-year paper have increased to approximately 1.00% (depending on structure) after trading around 60 basis points only a month ago.

The following table reflects last week’s total issuance and call activity across the primary GSE issuers.  Total issuance declined to $4.7 billion while volume fell to $2.4 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 just as it has all year.  Freddie Mac has a Reference note slot tomorrow, and the Federal Home Loan Bank has a Global issuance slot next Tuesday.  The market expects Freddie Mac to pass again, further keeping bullet supply suppressed and spreads extremely tight.

Daniel Anderson

Senior Vice President, Investment Strategies

Vining Sparks IBG, LP

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