Agency Update

November 12, 2019

Treasurys sold off significantly last week thanks to renewed optimism on a “phase one” trade deal with China.  Yields on 2- to 10-year Treasurys increased by 13 to 23 basis points with the backup, and bullets mostly moved in line with Treasurys.  As can be seen in the yield curve graph below, the yield curve has regained some steepness and the slope from 2s to 10s increased to 26 basis points, its steepest slope since this summer.

Last week agency bullets largely moved in line with Treasurys, while callables continued to tighten versus sovereign debt.  As highlighted in the chart below, callable spreads across the curve are mostly at their 12-month lows.  However, absolute yields have picked up with the market selloff—yields in the intermediate and longer portion of the curve are up roughly 40 basis points from the lows in early October.

The below table reflects last week’s total issuance and call activity across the primary GSE issuers.  Call volume remains high and came in at nearly $6.9 billion last week, and holders of callable paper can likely continue to expect elevated call volume in their higher coupon issues.  As mentioned in previous Sector Updates, portfolio managers can go to the Client Portal on the Vining Sparks website to view updated cash flow projections for any callable bonds that may be rolling off soon.

Last Wednesday the FHLB announced issuance of a $2 billion 2-year Global deal that priced at +6.  This Wednesday, November 13th, Fannie Mae has its next Benchmark securities issuance slot.  Next Monday Freddie Mac has its next Reference note issuance date.

Daniel Anderson

Senior Vice President, Investment Strategies

Vining Sparks IBG, LP

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