May 24, 2021
It was a rather quiet week in the bond market and Treasury yields finished the trading session Friday nearly unchanged from the previous week. The 10-year Treasury yield dipped by a basis point to 1.62%, firmly within the recent trading range. The only real market mover last week appeared to be the release of the April FOMC meeting minutes, which showed that the topic of tapering asset purchases had been broached by a “number of participants.” The 10-year yield jumped ~6 basis points following the release, only to fully retrace the move before the market closed the next day. Agency bullet spreads were unchanged, and bullets remain extremely tight versus Treasurys. Callables continued to tighten in, particularly on the longer end of the curve. The calendar picks up this week with 8 FOMC members scheduled to speak, several housing reports, regional Fed indices, both consumer confidence readings, and finally the much-anticipated April PCE release on a short trading session Friday.
Agency bullets remain near the tightest spreads on record. Bullets with 5-year finals are offered around +1; to put that in perspective, the 2017-2019 average spread for 5-year bullets was 9 basis points. Practically speaking, with spreads essentially at a floor, bullets can only widen going forward. For this reason, the Vining Sparks trade desk continues to move a meaningful amount of Treasury paper to would-be bullet buyers. Agency callables resumed their tightening streak last week, with smaller moves out to approximately 5 years, and 10- to 15-year callables tightening by up to 5 basis points. The bulk of the purchase activity seen last week was on the front end of the curve, out to approximately 6 years. As highlighted by the chart below, 5-year callables continue to trade near 1.00%, which has been a popular yield target for depository buyers not looking to add too much duration risk.
The following table reflects last week’s total issuance and call activity across the primary GSE issuers. Total issuance was flat at $3.1 billion and total call volume declined a bit to $2.5 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.
Freddie Mac passed on its Reference slot last week just as it has in all 7 issuance slots to start the year. The FHLB has a Global announcement slot this Wednesday, May 26th, with another one next Wednesday, June 2nd.
Senior Vice President, Investment Strategies
Vining Sparks IBG, LP