- Closing out the final week of the month, the Treasury curve continued to flatten by 1–4bps as demand grew on global weakness and US political uncertainties.
- The 10-year yield closed at lows of 0.538% on Thursday July 30th, along with the record low yield of 0.233% in the 5-year space. The spread on the 5-year and 30-year yields tightened 4bps to 96.5.
- It was a big week for the Fed, with the July FOMC meeting on Wednesday. As expected, rates were kept unchanged and there was no shift to forward guidance.
- Fed Chairman Jerome Powell signaled continued caution, noting that the Committee will not change rates until confident with economic progress.
- Corporate investment grade credit spreads widened out this week as markets were in risk-off mode following the Federal Reserve meeting, GDP data and Q22020 corporate earnings releases continued to show that the path to recovery in the US would be long-term.
- The iShares iBoxx Investment Grade Corporate Bond ETF, LQD, average 1-week range widened out approx. +4 bps.
- Primary issuance was expected to be on the lighter side, approximately $10-15 billion due to the Federal Reserve meeting mid-week. On Monday, AT&T Inc. issued an $11 billion five part deal, surpassing analyst’s low end of the range for new issuance.
- Moody’s reports a record 102 non-financial companies were in the danger of dipping below investment grade to speculative grade.
- California Pizza Kitchen filed for Chapter 11 bankruptcy on Thursday, July 30th due to the unprecedented impact of COVID-19.
Corporate New Issue Highlights
AT&T Inc. (T)
- Ratings: Baa2/BBB
- $11 billion in five parts
- $2.25 billion 7.5 year Fixed at +120; +120#, +150 area
- $2.5 billion 11.5 year Fixed at +165; +165#, +185 area
- $2.5 billion 22.5 year Fixed at +185; +185#, +205 area
- $2.25 billion 31.5 year Fixed at +205; +205#, +225 area
- $1.5 billion 40.5 year Fixed at +225; +225#, +245 area
Florida Power and Light Co. (NEE)
- $1.25 billion 3NC6m floater 3ml+38
- The issuer expected to raise approx. $500-750 million, expanded the deal size to $1.25bln as investors had a strong appetite for short floating rate paper. The deal was nearly 4x oversubscribed
- $1.25 billion 3NC6m FRN (July 28, 2023) at 3mL+38, guidance was 3mL+40a (+/-2), IPT 3mL+55 area
- Exp. Ratings: A1/A/A+
- Format: SEC registered, senior unsecured
- UOP: General corporate purposes, including the repayment of a portion of outstanding commercial paper obligations
- Issued a 13.5-year bond, average life 8-years.
- The deal was well received as the issuer upsized the deal and tightened in from initial price talk.
- Deal was upsized to $970 million from $690 million.
- $970 million 13.5 year 1st Lien Fixed (Feb. 20, 2034) to yield 1.875% (initial price talk: 2-2.125%)
- Issuer: Federal Express Corporation 2020-1 Pass Through Trusts (FDX), guarantor: FedEx Corp
- Exp. Ratings: Aa3/AA-
- Format: SEC registered, 1st lien, 2020-1 EETC Pass Through Certificates
- UOP: GCP
- Settlement: Aug. 13, 2020 (T+10)
- Average Life: 8.8 years
- Initial/max LTV 55.1%/55.1%
- Collateral: 19 freighter aircraft with an average age of 2.3 years
- 13x Boeing 767-300F (Sept. 2015 to March 2020 delivery)
- 6x Boeing 777F (Sept. 2015 to June 2020 delivery)
- AAA municipal bond yields out to 15 years have reached record lows.
- Municipal bond funds continued to see inflows of $1.8 billion for the week, through Wednesday July 29th. This marks the 12th consecutive week of inflows.
- The net shortage in supply continues to swell with $12.3 billion in issuance expected over the next 30 days vs. $40.7 billion in redemptions.
- The lack of aid in the latest stimulus plan proposed by Senate Republicans did little to rattle the muni market. The plan, which excludes any municipal aid, appears far apart from the Democrats proposed plan of $1 trillion to state and local governments, although consensus is middle ground, will be found with roughly $400-500 million in municipal aid.
- As the nation’s largest transportation hub, the MTA is relying heavily on further Government assistance, requiring an additional $3.9 billion in order to avoid layoffs, fare increases and delayed capital infrastructure projects. The latest GOP proposal does not include any additional funds for transit agencies while the relief plan put forth by Democrats included approximately $16 billion in additional assistance for transportation agencies.