May 11, 2020
Treasury yields were mixed last week as the market witnessed a historic jobs report on Friday that, somehow, was not as bad as many had feared. Unfortunately, the labor market data will likely worsen considerably before it improves. Yields on 2- to 5-year Treasury notes fell by 2 to 3 basis points, with the 2-year reaching an all-time low Thursday at 0.14%, while the 10-year yield moved higher on the week by 7 basis points. Agency securities continued to tighten in versus government debt, just as with most other bond sectors in the High-grade space. This week investors will again be focused on the weekly initial jobless claims data on Thursday to gauge whether people are returning to work as portions of the country reopen. Also of note, Fed Chair Jay Powell will speak on the economic outlook on Wednesday, and April retail sales data will be released on Friday.
Both agency bullets and callables resumed their recent tightening trend last week. Bullets for 2- and 3-year maturities tightened by 2 basis points while 5-year finals were basically unchanged. The most significant spread moves in callables on the front end of the curve were in 3-year finals with varying call structures, while longer 10- to 15-year terms also tightened in. Buyers looking to hit a 1.00% yield could do so with less structured callables with 5- to 6-year finals. Customers of Vining Sparks continue to be very active in the agency sector but are likely experiencing extreme call fatigue, which has pushed many investors into more highly structured callables or even bullets at still double-digit spreads in the intermediate portion of the curve.
The following table reflects last week’s total issuance and call activity across the primary GSE issuers. Total issuance fell to $7.0 billion and call volume was more than halved to $5.8 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 Freddie Mac issued a $3.5 billion 3-year Reference note that printed at +15. This Wednesday the Federal Home Loan Bank has an issuance slot to announce a new Global note. Next week Fannie Mae has a Benchmark slot on Wednesday.
Senior Vice President, Investment Strategies
Vining Sparks IBG, LP