October 18, 2021
Treasury yields resumed their march higher last week, at least in the intermediate portion of the curve, as the market continues to price in the Fed moving forward with tapering its asset purchases ahead of eventual rate hikes. As can be seen in the chart below, the 3-year note moved higher by 11 basis points week-over-week, while the 2- and 5-year saw increases of 6 to 8 basis points. The 10-year yield fell by 4 basis points, and the 30-year yield declined by a dozen basis points. After the disappointing jobs report the previous Friday, last week saw a firm inflation print on Wednesday ahead of the Fed’s September meeting minutes. The minutes appeared to confirm what the number of FOMC members conveyed in scheduled appearances in recent weeks: that they plan to begin their taper process soon, and it will likely be announced at their November meeting. Perhaps preventing a “taper tantrum” this time around is the consistent messaging from Jay Powell for months now, that their emergency policy tools will be put away in a calm, reasonable, and deliberate manner (and with few surprises to spook the market). Agency bullet spreads were mostly unchanged last week while callable spreads were mixed. As for the calendar this week, there are several housing reports scheduled for release plus more FOMC members on the tape. Look for a “risk-on” tone to begin creeping back in as the economy moves further away from the Delta variant and towards holiday shopping season, and eventually moving on from this once-in-a-century pandemic.
Agency bullet spreads were unchanged on the week and remain near all-time lows. Callable spreads were mixed, with 3- and 5-year terms tightening by a basis point while 15-year terms widened by several basis points. Trade activity remains brisk as depositories continue to invest excess liquidity. The Vining Sparks trade desk continues to move Treasurys in lieu of agency bullets due to such tight spreads. The bulk of the trade activity last week was again concentrated in the “belly” of the yield curve, with maturities mostly ranging from 3- to 7-year terms. As can be seen in the charts below, 3- and 5-year callable yields have finally begun to move higher after mostly trading flat over the past 6 months.
The following table reflects last week’s total issuance and call activity across the primary GSE issuers. Total issuance came in at $3.3 billion while call volume slowed to a trickle, totaling only $742 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.
The Federal Home Loan Bank passed on its issuance slot last Wednesday, and just passed again this morning on its second announcement date in a week. Fannie Mae also has a Benchmark announcement date scheduled for this Wednesday. Freddie Mac has its only Reference note announcement date of the month next Wednesday, October 27th.
Senior Vice President, Investment Strategies
Vining Sparks IBG, LP