November 2, 2020
Last week was an unusual one in the financial markets as equities, Treasurys, and gold all sold off on the week. The bellwether 10-year yield increased another 4 basis points to 0.88% and finished the week up 22 basis points in little over a month. Fixed-income investors will look to see if the 10-year can break out above 0.90%, the post-pandemic high-water mark set in early June. The market moves came amidst largely stronger economic data but surging U.S. coronavirus cases that have now topped the previous peak from this summer. Perhaps putting the election in the rearview will help focus lawmakers’ attention on another relief package, but investors must weigh the possibility of reinstated shutdowns here in the U.S. given recent developments in Europe. Agency bullets tightened for a third consecutive week while callables were mostly unchanged. This week will likely be one of the most tumultuous of the year given tomorrow’s election and the ensuing anxiety over the outcome that is likely to follow. Besides the election, the FOMC holds its November meeting this week and the October jobs report will be released on Friday.
Agency bullets tightened by a basis point for maturities out to 5 years and by approximately 2 basis points for 10-year finals. Callables were little changed on the week outside of 5-year terms mostly tightening by a couple of basis points. Internal activity remained brisk last week and mostly consisted of customers putting cash to work. Trade activity this week is expected to be a bit lighter given the election. Call activity declined last week (more detail below) but rates are still low enough to continue to see a high amount of redemptions.
The following table reflects last week’s total issuance and call activity across the primary GSE issuers. Total issuance surged to $16.2 billion while call volume was more than halved to $3.2 billion. Despite last week’s selloff, 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 the Federal Home Loan Bank passed on its Global issuance slot after announcing a new 2-year note the week before. Freddie Mac has its only Reference note issuance slot of the month tomorrow (Tuesday). Next week Fannie Mae has a Benchmark issuance date on Monday and the FHLB has another Global slot next Thursday, November 12th.
Senior Vice President, Investment Strategies
Vining Sparks IBG, LP