September 13, 2021
Softer activity due to the Delta variant is beginning to show up in the latest economic data, particularly as evidenced by the weaker August jobs report from the Friday before last. Yet that did not deter the Fed from discussing their taper agenda last week. With inflation now running at the hottest levels in years, it is no wonder that some FOMC members would prefer to finish the process sooner rather than later to give themselves as much flexibility with future rate hikes as possible. Yields for 3- and 5-year Treasury notes ended last week higher by 3 to 4 basis points, while the 10-year yield closed Friday up 2 basis points on the week at 1.34%. Spreads on agency bullets were mostly unchanged while callables tightened. There are several important economic data releases scheduled this week, particularly as the Fed gears up for their September FOMC meeting next week.
Agency bullet spreads were unchanged on the week except on the longer end of the curve. Spreads on 10-year notes finished the week tighter by a basis point to +10, while spreads out to 5-year maturities remain practically at zero. Callables across the curve tightened by approximately a basis point regardless of structure. As can be seen in the charts below, 3-year callables with 1-year lockouts have been trading near 50 basis points since the end of the first quarter. Yields on similarly structured 5-year notes likewise continue to trade near 1.00%.
The following table reflects last week’s total issuance and call activity across the primary GSE issuers. Total issuance declined from $10.0 billion to a (likely holiday-affected) $1.4 billion, while call volume stayed flat at $2.4 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 Wednesday the Federal Home Loan Bank announced a new 2-year Global note that priced at +1.5 to the New 2-year. Freddie Mac has a Reference note issuance slot scheduled for this Wednesday, September 15th, with another to follow less than a week later, September 21st. Freddie Mac has not issued a Reference note since December 2020.
Senior Vice President, Investment Strategies
Vining Sparks IBG, LP