Agency Update

October 19, 2020

After moving higher the previous week, Treasury yields declined last week and the curve flattened modestly.  The 10-year ended the week at 0.74% and the 2s-to-10s spread fell but held at 60 basis points, 10 basis points above the average since the end of March.  It was a quieter week with the Columbus Day holiday on Monday, and stimulus negotiations garnered the bulk of the headlines.  Now with the election only two weeks away, House Speaker Nancy Pelosi set a Tuesday (tomorrow) deadline to get a stimulus deal agreed upon.  Spreads on agency bullets were largely unchanged while callables mostly widened versus government debt.  This week’s calendar is another relatively quiet one on the economic front and investors’ attention will remain focused on stimulus negotiations, the accelerating virus counts both domestically and abroad, and the final runup to the election.

Agency bullet spreads were essentially unchanged besides 5-year bullets, which tightened by approximately a basis point.  Callable agencies widened out, with the biggest moves occurring on the longer end of the curve.  Internal activity last week was brisk.  Much of the purchase activity took place in callables in the intermediate portion of the yield curve.  Many depository investors continue to push out to the 7- to 10-year part of the curve to try to pick up the wider spreads.  The agency traders believe that Freddie Mac will likely close October settlement this week, with the other major issuers soon to follow.  Should investors need pre-election settlement, this week may be the last best chance to get trades done.

The following table reflects last week’s total issuance and call activity across the primary GSE issuers.  Total issuance fell to $6.6 billion while call volume increased to $10.5 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 Freddie Mac announced a $3 billion 3-year Benchmark note that printed at +7.5.  This week the Federal Home Loan Bank has a Global note issuance tomorrow (Tuesday), with another to follow next Tuesday.

Daniel Anderson

Senior Vice President, Investment Strategies

Vining Sparks IBG, LP

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