Agency Update

November 16, 2020

Treasurys sold off early in the week following the news of an effective COVID-19 vaccine by Pfizer, sending the 10-year nearly to 1.00% for the first time since March.  However, as the week moved on and daily virus cases rapidly escalated to new records here in the U.S., the market rallied and the 10-year ended the week at 0.90%.  Agency bullet spreads were mostly unchanged while callables tightened modestly on the front end of the curve.  This week’s economic calendar is relatively light and will mostly feature the retail sales report tomorrow, Fed commentary throughout the week plus a handful of housing reports.  In positive news, this morning Moderna announced that preliminary trial data on their vaccine showed a 94% efficacy rate.  Despite two viable vaccine candidates, the market will likely remain focused on the current virus case load and the implications of renewed restrictions should case counts maintain the current trajectory.

Agency bullets mostly moved in line with Treasurys but tightened on the long end of the curve.  Callables tightened by a basis point or two for maturities out to 10 years but widened for longer tenors.  Trading activity remained robust last week, and the desk largely focused on where it sees the most relative value in the market:  2-year lockout paper in the 4- to 7-year part of the curve.  With the Thanksgiving holiday towards the end of next week, this is the last full week of the month to put cash to work.

The following table reflects last week’s total issuance and call activity across the primary GSE issuers.  Total issuance increased to $6.4 billion while call volume declined to $4.0 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 Fannie Mae announced a $4 billion 5-year Benchmark note that priced at +13.5.  The Federal Home Loan Bank passed on its Global slot on Thursday and has another issuance date this Wednesday, November 18th.  Next week Fannie Mae has another issuance slot on Monday.

Daniel Anderson

Senior Vice President, Investment Strategies

Vining Sparks IBG, LP

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