May 3, 2021
Treasury yields on the longer end of the curve resumed their march higher last week after three consecutive weeks of declines. The 5-year note increased by 3 basis points to 0.85% and 10-year notes increased by 7 basis points on the week to 1.63%. It was a busy week highlighted by the April FOMC meeting that concluded on Wednesday. As expected, the FOMC made no changes to monetary policy and did not provide an update on when it plans to begin tapering asset purchases. Perhaps they will begin providing some guidance when they meet in June. Agency bullet spreads were mostly unchanged while callables tightened. Treasury yields are down so far this morning after the ISM manufacturing index came in weaker than expected. This week’s economic calendar is another busy one highlighted by the April jobs report that will be released on Friday. The market consensus is that the economy added another 900k in payrolls after the strong jobs number last month.
It appears that agency bullet spreads have found a floor. Unfortunately for institutional investors, that floor is essentially zero on the front end of the curve and is only a few basis points on the longer end. The Vining Sparks trade desk continues to move Treasury paper to would-be bullet buyers, yet that activity slowed down last week. Agency callables tightened to end the month, particularly for 10- and 15-year maturities. As has been the case in recent weeks, most of the agency purchases last week occurred in 4- to 6-year paper as buyers have targeted the tail end of the steepest portion of the curve.
The following table reflects last week’s total issuance and call activity across the primary GSE issuers. Total issuance increased to $10.8 billion and total call volume dipped to $3.6 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.
Last week Fannie Mae passed on its Benchmark slot and has another Benchmark issuance date tomorrow, May 4th. The Federal Home Loan Bank has a Global issuance slot next Wednesday, May 12th.
Senior Vice President, Investment Strategies
Vining Sparks IBG, LP