Agency Update

November 29, 2021

What started as a relatively benign holiday week in the financial markets turned into anything but when news of a new COVID-19 variant, newly termed Omicron, showed the possibility of increased transmissibility in southern Africa.  On what is typically one of the slowest (and least liquid) market days of the year, stocks had one of their worst days of 2021 on Friday while bond yields fell sharply.  The 10-year yield ended the week 7 basis points lower at 1.48% while 3- and 5-year notes fell by 6 basis points.  Bonds yields are up so far this morning, partially reversing the moves from Friday.

Agency bullet spreads were mostly unchanged last week and remain basically at all-time lows.  Callables in the 15-year part of the curve tightened marginally, with most other tenors unchanged.  The calendar this week is another rather busy one; in addition to the numerous FOMC members scheduled to speak, both ISM indices will be released plus the November jobs report comes on Friday.  Outside of economic data, portfolio managers will be eager to determine whether the Omicron variant forces the Fed to shift from their current pace of tapering asset purchases or delays any future rate hikes.

Agency bullet spreads were unchanged on the week and remain near all-time lows.  Because bullet spreads are practically zero out to 5 years, most would-be bullet buyers are purchasing Treasury notes instead.  Spreads on agency callables were practically unchanged last week except for 15-year terms, which tightened by about a basis point.  Trade activity was rather brisk last week despite the holiday Thursday.  The bulk of the purchase activity was again in 3- to 6-year maturities, which still appears to be the most attractive portion of the curve given recent flattening on the longer end.

The following table reflects last week’s total issuance and call activity across the primary GSE issuers.  Total issuance increased to $7.5 billion and call volume was basically flat at only $210 million last week.  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 the Federal Home Loan Bank passed on its issuance slot.  Fannie Mae has a Benchmark slot scheduled for this Wednesday, December 1st.  Freddie Mac has a Reference issuance date next Thursday, December 9th.

Daniel Anderson

Senior Vice President, Investment Strategies

Vining Sparks

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