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Weekly Fixed Income Market Views from July 24th 2020 Thumbnail

Weekly Fixed Income Market Views from July 24th 2020

Insights

Rates Market

  • Treasuries remained fairly muted on the week, with yields trading slightly flatter than recent ranges.
  • Yields were lower across the curve by 0.4bps to 3.5bps.
  • The 10-year note hit a 52-week low at 0.581% on Thursday.
  • No major headlines are expected on the Fed front, as speakers are in the black out period ahead of the July 29 FOMC decision.Source:Bloomberg.

Corporate Market

  • Average corporate spreads have tightened in week-over-week; the iShares iBoxx Investment Grade Corporate Bond ETF, LQD, 1-week range came in 6bps.
  • New corporate issuance was low this week – corporate new issues were approximately $6 billion vs analyst forecasts of $15-$20 billion. 
  • Early indications of August supply estimate approximately $50 billion which is the lowest August estimate since 2014, during the Greek debt crisis. 
  • Be wary of make-whole call provisions on bonds. There are a few with low primary issuance especially in the front end of the curve. Corporate spreads have tightened to levels where the make-whole call provisions are becoming a problem. 

Corporate New Issue Highlights

  • Bank of America
    • $4.75 billion in two part offering
    • $2.75 billion 11NC10 Fixed-to-FRN (July 23, 2031) at +128
    • Guidance: +130a (+/-2), Initial price talk: +145 area
    •  1-month par call, MWC
    • $2billion Tap of BAC 2.676 06/19/41 Corp at +135
    • Guidance: +135#, Initial price talk: +145 area
    • Coupon: 2.676000
    •  1-month par call, MWC
  • Toyota Motor
    • $750 million 2-Yr Fixed (July 22, 2022) at +33
    • Guidance +35a (+/-2), Initial price talk:  low +50s
    • Exp. Ratings: A1/A+/A+
    • Format: SEC registered, senior unsecured, Medium-Term Notes, Series B; Diversity & Inclusion Offering
    • UOP: GCP, including the purchase of earning assets and the retirement of debt
    • Settlement: July 23, 2020 (T+3)
    • Denoms: 2k x 1k

Source: Bloomberg.

Muni Market                          

  • Tax-exempt municipals moved with Treasuries again this week as yields fell slightly lower, led by longer maturities. 
  • With the Fed anchoring short-term rates for the foreseeable future investors are forced to move out on the curve for yield pickup. 
  • The municipal market continues to find support from supply/demand dynamics with $11.6 billion in expected supply over the next month vs $32.9 billion in maturities. 
  • As states and municipalities look to plug larger than expected budget gaps as a result of the pandemic, eyes continue to fall on Washington to pass another round of much anticipated relief.
  • With the delayed tax season behind us, the SIFMA 7-day index reset to 0.18% down from 0.21% the week prior. 

Source: Bloomberg.