Weekly Fixed Income Views from August 21, 2020
- This week saw gains in US Treasury bond prices across the curve, led by the long-end.
- The yield on 10-year Treasuries opened the week around 0.689%, reaching 0.627% on Friday.
- On the supply front, Wednesday’s 20-year auction was met with strong demand, stopping around 1.185%, while Thursday’s TIPs reopening drew weak demand in the 30-year space.
- The July FOMC minutes were released on Wednesday, with no major surprises or changes to current guidance.
- The iShares iBoxx Investment Grade Corporate Bond ETF, LQD, was approximately +5bps wider this week.
- Primary new issuance has reached record breaking volume year-to-date. Supply issued year-to-date, month-to-date surpassed previous records and week-to-date issuance surpassed expectations.
- Year-to-date run rate is 70% ($1.35 trillion, surpassing 2017’s record $1.33 trillion)
- Month-to-date run rate is 72% ($110 billion, approaching the 2016 record of $115 billion)
- Week-to-date issuance is $26 billion vs analyst expectation of $30 billion
Corporate New Issue Highlights
Honeywell International Inc. - $3 billion 2-part deal
- $2.5 billion 2NC1 Fixed (Aug. 19, 2022) at +33
- $500 million 2NC1 FRN (Aug. 19, 2022) at 3mL+23
Roper Technologies Inc. - $2.7 billion 4-part deal
- $300 million 2-year Fixed (Aug. 15, 2022) at +35
- $700 million 5-year Fixed (Sept. 15, 2025) at +75
- $700 million 7-year Fixed (Sept. 15, 2027) at +95
- $1 billion Long 10-year Fixed (Feb. 15, 2031) at +110
Johnson & Johnson - $7.5 billion 6-part deal
- $1 billion 5-year Fixed (Sept. 1, 2025) at +30
- $1.5 billion 7-year Fixed (Sept. 1, 2027) at +50
- $1.75 billion 10-year Fixed (Sept. 1, 2030) at +65
- $1 billion 20-year Fixed (Sept. 1, 2040) at +75
- $1 billion 30-year Fixed (Sept. 1, 2050) at +90
- $1.25 billion 40-year Fixed (Sept. 1, 2060) at +110
- Municipals underperformed Treasuries this week moving yields and ratios higher as a wave of new supply hit taking advantage of record low yields.
- 2-year ratio: ~ 82%
- 5-year ratio: ~ 93%
- 10-year ratio: ~110%
- 30-year ratio: ~ 106%
- Municipal bond funds continued to see inflows. $1.8 billion was added for the week ended 8/19, this is the 15th consecutive week of inflows.
- Earlier this week, the MTA (Metropolitan Transportation Authority, the largest public transit authority in the U.S., responsible for public transportation in New York) became the second borrower to utilize the Fed’s Municipal Liquidity Facility selling 3-year notes at a 1.92% yield, 87bps lower than bank bids of 2.79%.
- $10.4 billion in new issues are set to price next week. Notable deals include $1.38 billion of New York City General Obligation bonds and $1.35 billion of California State University bonds.
- 30-day visible supply is $14.5 billion vs $30.2 billion in redemptions.