May 17, 2021
It was another busy week in the market and the news cycle was dominated by the April CPI release, coming in much hotter than anticipated. Unsurprisingly, bonds sold off on the news, but bond yields ended the week higher by only 4 to 5 basis points for maturities 3 years and out. FOMC members were out in full force to convey their unified message on monetary policy: there is still more progress to be made on the jobs front; hotter-than-expected inflation is likely transient; and the Fed must remain accommodative with regards to monetary policy. The 10-year ended the Friday session at 1.63%, and the 5-year yield increased to 0.82%, both within their recent trading ranges. Agency bullet spreads were unchanged and callables tightened after widening a bit the week before. This week will be a quieter one with several housing reports, more Fedspeak, and the April FOMC minutes release on Wednesday.
Agency bullets continue to trade near the tightest spreads on record. Bullets out to approximately 2 years offer no spread pickup over Treasurys, while 5-year bullets are offered around +1. For this reason, the Vining Sparks trade desk continues to move a sizable amount of Treasury paper as a substitute. Agency callables reversed course and tightened in last week by approximately 1 to 4 basis points depending on term and structure. Much of the purchase activity again occurred in 4- to 7-year paper, which has been the case for a couple of months.
The following table reflects last week’s total issuance and call activity across the primary GSE issuers. Total issuance increased to $3.1 billion and total call volume ticked higher to $3.2 billion. For specific call dates and amounts for individual bond portfolios, be sure to log in to the Client Portal on the Vining Sparks website.
As expected, last week the Federal Home Loan Bank passed on its Global slot. Freddie Mac has a Reference slot this Wednesday, May 19th. The FHLB has another Global slot next Wednesday, May 26th.
Senior Vice President, Investment Strategies
Vining Sparks IBG, LP