Agency Update

November 9, 2020

In one of the more eventful weeks in recent memory, equities and Treasurys both rallied following the results of the election.  Yields on the front end of the curve were largely unchanged, and the Fed held its November meeting last week where they reiterated their pledge to maintain their accommodative stance on monetary policy.  Further out the curve, 5- and 10-year yields fell by 2 and 6 basis points, respectively, given the likelihood of a divided Congress and diminished chances of a larger Democrat-proposed stimulus package.  Those moves lower in yields have more than reversed this morning on news of an effective vaccine developed by Pfizer and BioNTech.  Treasury yields are up across the curve, and the 10-year is now at 0.95% as of this writing, a level not seen since March.  The yield curve has steadily steepened since early August and the 2s-to-10s spread now sits at ~77 basis points, its steepest since February 2018.  Agency debentures largely moved in line with sovereign debt last week.  This week’s economic calendar is considerably lighter and will mostly feature numerous Fed speakers on the tape sandwiched around the Veterans Day holiday Wednesday.  Given the news on the vaccine, the market to be largely focused on the reopening trade despite the fact that domestic and global coronavirus cases are currently at their peak.

Spreads on agency bullets and callables were essentially unchanged last week.  Internal activity was steady as depositories and public funds continue to put excess cash to work and reinvest call proceeds.  For months now most of the callables being issued and purchased are longer lockout deals with initial call dates 1 to 2 years out.  With the market off this morning, expect portfolio managers to look to the secondary market for discounted paper with similar lengthy lockout structures given the current volatility and still elevated economic uncertainty.

The following table reflects last week’s total issuance and call activity across the primary GSE issuers.  Total issuance fell to $5.2 billion while call volume increased to $4.9 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 Freddie Mac passed on its only Reference note issuance slot of the month.  This morning Fannie Mae announced a 5-year Benchmark note with price talk in the +14 area. The Federal Home Loan Bank has a Global slot this coming Thursday, November 12th, with another to follow next Wednesday.

Daniel Anderson

Senior Vice President, Investment Strategies

Vining Sparks IBG, LP

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