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Weekly Fixed Income Views from December 4, 2020 Thumbnail

Weekly Fixed Income Views from December 4, 2020

Rates Market

  • US Treasury prices are down heading into Friday’s close, off of the week highs yesterday.
  • Rates rose after nonfarm payroll data came in below consensus estimates which increased the likelihood that stimulus will be pushed through Congress.  
  • The 2s10s spread steepened to a 52-week high of 81.6bps, while 5s30s reached 130.4bps.
  • The 10-year yield rose ~13bps higher on the week to 0.974% as of Friday afternoon.
  • Market focus remains centered on Stimulus talks heading into the year-end.

Source: Bloomberg.

Corporate Market

  • The corporate spread for the iShares iBoxx Investment Grade Corporate Bond ETF, LQD, was approximately -8 bps tighter this week.
  • The UK was the first western country to approve PFE’s vaccine this week. The UK pre-ordered 40 million doses before PFE announced that the company would need to reduce production estimates citing difficulties securing materials.
  • The ECB decided to extend their pandemic bond buying program, potentially to mid-year 2022.
  • The Federal Reserve bond buying program, the SMCCF (Secondary Market Corporate Credit Facility) will expire Dec, 31st 2020.
  • New issuance for the week total $18 billion, exceeding the street’s projected amount of $10-15 billion.
    • Year-to-date run rate: 57% ($1.72 trillion)
    • Month-to-date run rate: 128% ($13.2 billion) 

Source: Bloomberg.

Corporate New Issue Highlights

Bank of Montreal $1.5bln 2-part Issue

  • $900m 3Y Fixed (Dec. 8, 2023) at +27
  • $600m 3Y FRN (Dec. 8, 2023) at SOFR Equiv+35

Barclays $1.5bln Issue 4NC3 +80

  • $1.5b 4NC3 Fixed (Dec. 10, 2024) at +80

Citigroup $1.5bln Preferred Issue

  • $1.5b PerpNC5 Variable to Yield 4%

Credit Suisse $1.5bn Preferred Issue

  • $1.5b PerpNC10 Sub Variable to Yield 4.5%

Muni Market

  • Municipals outperformed Treasuries on the week tightening ratios to pre-pandemic levels.
  • Light supply combined with fund inflows, $201mm for the week ended 12/2, have continued to provide support to the market.
  • A group of bipartisan lawmakers have proposed a $908bn stimulus plan (significantly lower than the previous $2.4T plan Democratic leaders previously sought). The bipartisan plan (much closer to McConnell’s smaller proposal) is a starting point to re-ignite negotiations but sticking points remain, including $160bn in aid for state and local governments.
  • 30-day visible supply is $2.1bn vs $20.1bn redemptions.
  • Issuance next week is expected to be $8.6bn, notable deals include; State of Connecticut $800mm and JFK International Air Terminal $671mm.

Source: Bloomberg.