October 5, 2020
In what seems like a rarity these days, Treasury yields ended last week higher by 2 basis points in the belly of the curve and up 4 basis points on the 10-year. The selloff has continued so far this morning and the curve has steepened further. It was a busy week with several significant economic data releases, which came in largely weaker. Although initial and continuing jobless claims both fell to the lowest levels since the start of the pandemic, the Friday jobs report came in weaker than expected, and the ISM manufacturing index fell unexpectedly. Overshadowing the data, however, was the combative presidential debate on Tuesday, the wide gulf that remains between the White House and House Democrats on a new aid package, and the news early Friday that the President and First Lady both tested positive for COVID-19. Expect heightened volatility over the coming weeks as the election nears amid an economic recovery that clearly could use some assistance from Washington. Spreads on both agency bullets and callables were basically unchanged on the week. This week’s calendar is a bit lighter and is highlighted by the release of the FOMC September meeting minutes on Wednesday and a number of Fed speakers scheduled to speak throughout the week.
Agency bullets were essentially unchanged on the week apart from 10-year bullets, which tightened by approximately a basis point. Callable agency spreads were very little changed on the week and callables continue to trade near pre-pandemic spreads. Internal activity last week slowed somewhat, perhaps on a letup in call activity (more details below). Much of the purchase activity took place in callables in the belly of the yield curve, specifically 4- to 5-year final maturities. Most of the new issues lately are coming with 1-year call lockouts.
The following table reflects last week’s total issuance and call activity across the primary GSE issuers. Total issuance increased to $11.6 billion while call volume fell to only $3.0 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.
There were no major issuance dates scheduled for last week. Fannie Mae has a Benchmark slot this Wednesday, and Freddie Mac has a Reference note issuance date next Wednesday.
Senior Vice President, Investment Strategies
Vining Sparks IBG, LP