September 21, 2020
It was another placid week in the bond market and Treasury yields moved marginally higher. The highlight of the week came on Wednesday with the FOMC announcement that that the overnight rate target and their quantitative easing program would both remain unchanged. The market also got its first look at the Fed’s updated “dot plot,” which showed that all but a few Fed governors do not expect to raise rates through year-end 2023. Both agency bullets and callables tightened on the week. Treasurys are rallying this morning, apparently over worsening virus data in Europe and heightened political uncertainty in Washington. This week’s calendar is rather light and includes several Fed speakers on the tape, and Jay Powell and Steve Mnuchin are scheduled to testify before the Senate Banking Committee on Thursday.
Agency bullets moved tighter by 2 to 3 basis points for 5- to 10-year finals. Bullets on the front end of the curve continue to trade at pre-pandemic spreads and make ideal sale candidates for depositories looking for liquidity or to reposition the portfolio heading into the fourth quarter. Callable agencies also tightened and to a greater degree than bullets, with spreads on most terms and structures moving lower by 3 to 6 basis points. The Vining Sparks trade desk remained highly active last week and saw investors continuing to buy securities with longer maturities than had been desired in the past—no huge surprise given how much yields have fallen this year.
The following table reflects last week’s total issuance and call activity across the primary GSE issuers. Total issuance declined on the week to $8.7 billion while call volume increased slightly to $4.0 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.
Last week Fannie Mae passed on its issuance slot. This Wednesday Freddie Mac has a Reference issuance date, and there are no major issuance dates scheduled for next week. Fannie Mae has its next Benchmark slot the following week on October 7th.
Senior Vice President, Investment Strategies
Vining Sparks IBG, LP