Agency Update

November 22, 2021

After a couple of weeks of elevated volatility, some relative calmness returned to the bond market last week and Treasury yields ended the week largely unchanged.  The yield on 3-year notes increased by 2 basis points while the 10-year yield declined by 2 basis points, with most points in between flat on the week.  Bonds yields are up so far this morning on the news that Fed Chair Jay Powell will be renominated for a second term in February.  Although this was widely anticipated, the announcement removes one element of uncertainty that had been hanging over the market in recent months.  As of this writing, 5-year Treasurys are trading at ~1.28%, a new high-water mark for the year.

Agency bullet spreads have moved very little of late and remain basically at all-time lows.  Callables with shorter maturities tightened a bit while 10-year tenors widened marginally (further details below).  Turning to this week’s calendar, Wednesday has the potential to be rather eventful before the market closes early ahead of the Thanksgiving holiday on Thursday.  A few headline-grabbing releases slated for Wednesday:  the initial GDP revision, October readings for durable goods orders, PCE inflation, and consumer confidence, plus the November FOMC meeting minutes.  The market will be open all day on Friday although it is usually one of the slower days of the year.

Agency bullet spreads were unchanged on the week and remain near all-time lows.  Bullets still trade at nearly imperceptible spreads out to the ~5-year portion of the curve.  Callables with 3-year maturities saw the biggest moves as those tenors tightened by approximately 3 basis points.  Spreads on 10-year maturities widened by a basis point on the week.  Trade activity remains robust as depositories continue to invest excess liquidity.  The bulk of the purchase activity was out to 6-year maturities, which should come as no surprise given the current steepness of the front end of the yield curve.

The following table reflects last week’s total issuance and call activity across the primary GSE issuers.  Total issuance increased to $6.4 billion and call volume was flat at only $110 million last week.  Call activity could pick back up if bond yields stay relatively depressed.  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 Freddie Mac and Fannie Mae both passed on their issuance slots.  The Federal Home Loan Bank has an issuance date scheduled for today (Monday) but no announcement has been made yet.  Fannie Mae has another Benchmark slot scheduled for next Wednesday, December 1st.

Daniel Anderson

Senior Vice President, Investment Strategies

Vining Sparks

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