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Weekly Fixed Income Views from March 19, 2021 Thumbnail

Weekly Fixed Income Views from March 19, 2021

Insights

Rates Market

  • Yields on U.S. Treasuries continued to climb as the Federal Reserve remained the focus this week.
  • The curve steepened further on Friday, with the spread between the 2-year note and 30-year bond reaching 232bps, wider by 4bps on the week.
  • The 10-year yield rose as much as 4 basis points to 1.75% after news that the Fed will not extend the bank relief put in place at the onset of the pandemic, causing some deleveraging.
  • Massive supply of cash continues to flood the market as primary dealer reported holdings were down $16 billion.
  • Wednesday’s Fed minutes revealed a very dovish tone as it is unlikely that the Feb will raise interest rates within the next three years.
  • The front of the bill curve remains near zero as repurchase agreements and money markets continue to enter negative territory.  Yields out the curve past 5-years moved higher, in line with inflation expectations.

Source: Bloomberg.

Corporate Market

  • The corporate spread week-to-date for the USD Investment Grade All Sector OAS was tighter by +1bps.
  • Investment grade funds recorded $5.43 billion in inflows vs $3.3 billion in inflows the prior week.
  • High yield funds reported $410 million in inflows vs $5 billion in outflows the prior week.
  • New issuance week-to-date of $24 billion fell short of the street’s projected amount of $35 billion as the market digested the FOMC meeting and the rise in rates.
  • The new issue deals still had a healthy interest book at 2-3x.
  • Year-to-date issuance $383.9 billion (+35% year-over-year).

Source: Bloomberg.

Corporate New Issue Highlights

  • Marriott Intl priced a $1.1bln 10Y
  • $1.1b 10Y Fixed (April 15, 2031) at +140
  • Toyota priced $2.75 billion in 3 parts
  • $1.25 billion 3Y Fixed at +35
  • $1 billion 5Y Fixed at +48
  • $500 million 10Y Fixed at +65
  • Schwab priced $4 billion in 3 Parts
  • $1.5 billion 3Y Fixed (March 18, 2024) at +43
  • $1.25 billion 3Y FRN (March 18, 2024) at SOFR+50
  • $1.25 billion 7Y Fixed (March 20, 2028) at +75
  • Raymond James priced $750 million (deal was upsized from $500 million)
  • $750 million 30Y Fixed at +130

Muni Market

  • Municipal yields rose 6-12bps higher, underperforming Treasuries, as inflation concerns continue to drive rates higher after the Federal Reserve confirmed interest rate policy will remain accommodative through the recovery.
  • Ratios were slightly higher on the week with some relative value inside 5 years, but remain on the richer side of longer term averages outside of 5 years. 
  • Municipal funds saw $1.27 billion of inflows for the week ending 3/17.
  • Earlier in the week President Biden revealed his tax policy change proposals, increasing corporate tax rates from 21% to 28%, higher taxes on earners over $400k, and increasing capital gains and estate taxes among them.
  • Visible supply hovers around $12 billion, above the 2021 average.

Source: Bloomberg.