Agency Update

November 23, 2020

Last week the market continued to focus on record virus cases in the U.S. and the implications for an economy attempting a recovery from its sharpest contraction since the Great Depression.  While daily virus cases have essentially tripled in a month, and multiple states have imposed new or renewed restrictions, Congress has yet to make any headway on a new relief bill.  The Fed has even made public pleas for additional fiscal stimulus as there are only so many tools left at their disposal.  The bond market rallied last week and essentially reversed the moves from the week before.  After ending the previous Friday at 0.90%, the 10-year yield declined to 0.83%.  Agency bullets mostly moved in line with Treasurys while callables widened on the week.  The bulk of this week’s data releases will come on Wednesday ahead of the Thanksgiving holiday.

Agency bullets essentially moved in lockstep with Treasurys last week.  Callables widened by a basis point or two out to 5 years and by 4 to 5 basis points in the 10- to 15-year part of the curve.  Despite the wider spreads, as highlighted in the charts below, spreads on callables are now near or below levels from the beginning of the year.  Trading activity last week mostly involved customers putting excess cash to work and reinvesting call proceeds, and the bulk of the purchases were callables in the 3- to 5-year part of the curve.  Relative value seekers can still push beyond 5-year maturities where the Treasury curve steepens and spreads on agency paper widen meaningfully.

The following table reflects last week’s total issuance and call activity across the primary GSE issuers.  Total issuance increased to $6.9 billion call volume picked up to $5.6 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 the Federal Home Loan Bank passed on its Global slot for the second week in a row.  This morning Fannie Mae announced a new 3-year Benchmark note with price talk in the +7.5 neighborhood.  Next Wednesday Freddie Mac has its final Reference note issuance date of the year.

Daniel Anderson

Senior Vice President, Investment Strategies

Vining Sparks IBG, LP

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