October 4, 2021
Treasury yields declined last week after initially moving higher heading into the September close. Investors had a bit more time to process the September Fed meeting, but bonds appeared to mostly rally on geopolitical events overseas. The 10-year yield finished the Friday session at 1.46%, down only one basis point but it was quite the journey from the prior week. The 5-year finished the week at 0.93% after moving above 1.00% for the first time since the start of the pandemic. Agency bullet spreads were largely unchanged while callables widened a bit. This week’s calendar is another relatively full one but the big release comes Friday with the September jobs report. Market consensus shows that investors expect a bit of a rebound on payrolls after a disappointing August print.
Agency bullet spreads were unchanged on the week and remain near all-time lows. Callable spreads were mixed with a handful of tenors widening on the week. Trade activity continues to hold up as depository customers invest excess liquidity. Given such tight bullet spreads, the Vining Sparks trade desk continues to move a lot of Treasurys to would-be agency bullet buyers. Callable buyers appear to be looking towards more structure versus less—no surprise given the uncertainties of the past 18 months. As can be seen in the charts below, 3- and 5-year callable yields are still close to where they ended the spring.
The following table reflects last week’s total issuance and call activity across the primary GSE issuers. Total issuance declined to $2.3 billion while call volume increased to $7.7 billion. 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 Freddie Mac passed on its Reference note issuance slot, just as it has all year. Fannie Mae has its next issuance date next tomorrow, September 28th, with another to follow next Tuesday.
Senior Vice President, Investment Strategies
Vining Sparks IBG, LP