September 28, 2020
Treasury yields remained rangebound last week and the yield curve flattened marginally. Sovereign yields ended the week Friday lower by a basis point out to 5 years and lower by 4 basis points on the 10-year. While there were meaningful economic data releases, the bond market particularly focused on multiple Fed governors that lent further insight into the Fed’s new inflation averaging monetary policy framework. In addition to the Fed raising rates more slowly to combat inflation, their guidance largely reiterated the expectation of low interest rates for years, which should continue to keep the front end of the yield curve largely anchored over the near term. Spreads on agency bullets were mostly tighter on the front end of the curve yet wider for longer maturities. Callables mostly tightened on the week. This week’s calendar is full and rather backloaded—the latest inflation, personal income and spending, and the ISM manufacturing releases are scheduled for Thursday, and the September jobs report comes on Friday.
Agency bullets moved tighter by 1 to 2 basis points for 1- to 3-year finals, while 10-year bullets widened by approximately 3 basis points. Bullets on the front end of the curve continue to trade at pre-pandemic spreads and make ideal sale candidates for depositories looking to harvest gains or to reposition the portfolio heading into the fourth quarter. Callable agencies tightened last week for maturities out to 10 years while 15-year finals traded wider by approximately 8 basis points. The Vining Sparks trade desk remained relatively active last week, with some of the bigger trades occurring in callables in the 5- to 10-year area of the curve.
The following table reflects last week’s total issuance and call activity across the primary GSE issuers. Total issuance declined on the week to $8.2 billion while call volume increased to $6.8 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 Freddie Mac announced a $5 billion 5-year Reference note that printed at +18. There are no major issuance dates scheduled for this week. Fannie Mae has a Benchmark slot next Wednesday, October 7th.
Senior Vice President, Investment Strategies
Vining Sparks IBG, LP