September 30, 2019
Treasurys rallied for the second consecutive week and yields are back near the middle of the September range, more than 20 basis points above the lows but nearly as distant from the recent rate highs of 2 weeks ago. Agency bullet yields finished the week 3 to 4 basis points lower; bullets with maturities of 2 to 5 years are trading in the 1.64-1.68% range. Much of the move in government bond yields this year has been related to the U.S.-China trade war, and there is hope that progress can be made when the two sides get together in the latter part of next week.
Agency bullets widened versus Treasurys last week while callable spreads were mostly unchanged. Bullets continue to trade near their multiyear average spreads while callables remain on the wider end of the recent trading range. Despite the bond market rally last week there are still bullets and callables trading at modest discounts. Much of the discount paper is trading at prices of $99.75 or higher, but discounts nonetheless.
The below table reflects last week’s total issuance and call activity across the primary GSE issuers. Call volume declined to $2.3 billion, but holders of callable paper can likely continue to expect elevated call volume in their higher coupon issues. As mentioned in previous Sector Updates, portfolio managers can go to the Client Portal on the Vining Sparks website to view updated cash flow projections for any callable bonds that may be rolling off soon.
Freddie Mac passed on its issuance date last Tuesday just as it has all year. This Wednesday the Federal Home Loan Bank has its next Global issuance slot. Freddie Mac has another issuance date next Thursday, October 10th.
Senior Vice President, Investment Strategies
Vining Sparks IBG, LP