September 27, 2021
In one of the more exciting weeks in the financial markets in recent memory, Treasury yields moved considerably higher after initially dipping to start the week. Looming over the market has been the uncertainty over future FOMC policy, but investors’ questions appear to have been mostly answered following the September Fed meeting. As widely predicted, the Fed made no changes to policy at the meeting, but they did signal that the taper process would likely begin before the end of the year (likely in November) with the goal to finish the taper process by mid-year 2022. The 10-year yield finished the Friday session at 1.45%, up 9 basis points to the highest level since early July. The 5-year yield also closed the week up 9 basis points at 0.95%, near the high-water mark for the year. Agency bullet spreads were little changed last week while callables tightened. This week’s calendar is another busy one with many economic data releases plus several FOMC members scheduled to speak. Additionally, the House is set to vote on the $550 billion infrastructure plan, which House Speaker Nancy Pelosi signaled over the weekend that has enough votes to pass.
Agency bullet spreads were unchanged on the week and remain near all-time lows. Callable spreads on the front end of the curve were mostly unchanged but 5- to 15-year tenors saw spreads come in by approximately 3 basis points. Internal trade activity was robust again last week. Given such tight bullet spreads, the Vining Sparks trade desk continues to move a lot of Treasurys to would-be agency bullet buyers. There were also many callable buyers in the 3- to 5-year part of the curve. As can bee seen in the charts below, callable yields look to be finally edging higher after being stuck near the same levels for much of the last 6 months.
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