November 30, 2020
Treasury yields were little changed on the holiday-shortened week and ended the trading session on Friday essentially unchanged out to 5 years, while the 10-year yield increased by a basis point. Agency bullets widened slightly versus Treasurys while callables mostly tightened in. Bond yields are flat this morning while stocks have turned lower after a very strong November. After reinstating heightened restrictions across much of the country in recent weeks, the virus case growth has slowed of late, but time will tell whether the Thanksgiving holiday will lead to the spike in cases that many scientists fear. Turning to the calendar this week, there are several meaningful economic data releases, including the November ISM manufacturing and services indices on Tuesday and Thursday, respectively, followed by the jobs report on Friday.
Agency bullets widened slightly on the front end of the curve while tightening in the 10-year sector. After widening out the previous week, callables tightened by approximately 2 basis points for 5- and 10-year maturities. As mentioned in this space in recent weeks, spreads on agency bullets across the curve have now fallen back to pre-pandemic levels, and as highlighted in the charts below, callable spreads are now near or below levels from the beginning of the year. For portfolio managers looking to harvest gains before year-end to meet budget or offset loan losses, agency bullets remain ideal sale candidates. Trading activity last week remained brisk, at least through Wednesday, and much of the purchase activity was focused on longer lockout (i.e. 2 years) callables in the 5-year part of the curve.
The following table reflects last week’s total issuance and call activity across the primary GSE issuers. Total issuance increased to $11.7 billion while call volume fell to $4.5 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 new $3.5 billion 3-year Benchmark note that priced at +7. The FFCB also issued a $900 million 2-year SOFR floating rate note that priced at +6. Keep in mind that the Vining Sparks trade desk can source this paper, but the deals are mostly put away through pre-orders. Contact your account representative for more information. This Wednesday Freddie Mac has its final Reference note issuance date of the year. Next Monday Fannie Mae has its next Benchmark slot followed by the FHLB’s Reference slot on Wednesday.
Senior Vice President, Investment Strategies
Vining Sparks IBG, LP