- The curve steepened for another week led by the long-end, as the 30-year yield reached 1.51% in the week.
- The spread between the 5-year& 30-year reached 125 bps, the highest since early June.
- The yield on the 10-year finished last week at 0.63%, getting cheaper this week closing in around 0.72%.
- The Fed held the annual Jackson Hole summit, where Fed Chairman Powell remarked on the current policy framework, becoming more flexible with the inflation target of 2%.
- The corporate spread for the iShares iBoxx Investment Grade Corporate Bond ETF, LQD, was approximately flat to +1bps wider this week.
- The bulk of new issuance in the primary market occurred in the beginning of the week and tapered off as the market awaited commentary from the Fed Chairman on Thursday. The dovish tone of Powell’s speech should help corporate bond spreads tighten-in.
- Year-to-date issuance is at an all-time record $1.377 trillion.
- Week to date, volume was $16 billion vs analyst expectations of $20 billion (majority of the volume was on Monday totaling $11 billion).
- Due to the low-rate environment, companies are issuing debt skewed towards the longer end of the curve.
- Year-to-date the 10-year tenor accounts for 1/3rd of all new issuance.
- New issuance on the front-end is low, causing further compression of yields.
Corporate New Issue Highlights
Tencent Music Entertainment - $800 million 2-part deal (15x oversubscribed)
- $300 million 5-year Fixed at +110
- $500 million 10-year Fixed at +135
Coca-Cola Femsa - $705 million 12-year Green Bond (11x oversubscribed)
- Deal was upsized to $705 million from $500 million
- $705 million 12-year Fixed (Sept. 1, 2032) at +120
- A combination of yield fatigue and a jump in issuance resulted in higher municipal yields for the week with the curve steepening 7bps.
- As we move into September, negative seasonality will be a factor as redemptions typically slow, resulting in upward pressure on yields.
- 30-day visible supply sits at $15.4 billion vs $24.2 billion in redemptions (half the amount of last month).
- Credit quality will be a focus as negotiations in Washington drag on and divide further.
- Municipal funds saw their 16th straight week of inflows adding $1 billion for the week ending Wednesday, down from $1.8 billion the week prior.
- NYC issued $1.1 billion in General Obligation bonds this week. Orders totaled $1.9 billion, resulting in issue yields 3-6bps lower.
- Issuers are set to sell $9.23 billion next week, including $2.4 billion State of California bonds.