Weekly Fixed Income Views from November 6, 2020
- Treasuries are down heading into the final day of what has been a volatile week.
- The spread between the 2-year and the 10-year reached a high of 72.7bps on election day, only to flatten to 67.3bps on Friday. Less movement was see in the spread between the 5-year and the 30-year bond which remained range-bound around 124bps.
- After hitting an intraday high of 0.927% on November 3rd, the 10-year yield is back down to sessions lows after the strong October jobs report.
- Aside from nonfarm payrolls, the market remains entirely locked on all headlines out of the swing state election results.
- The corporate spread for the iShares iBoxx Investment Grade Corporate Bond ETF, LQD, was approximately -18 bps this week.
- Recent trading sessions, credit spreads has tighten in as the presidential election becomes more apparent. The uncertainty in the US presidential election created an overcast on the market as investors fled to safe haven assets like the US treasury. The week was littered with data points (FOMC – Thursday, Unemployment/Jobs – Friday) but the data points took a back seat as fiscal uncertainty took front and center.
- Issuers held back coming into US elections.
- Waste Management was the only investment-grade company to issue new debt. WM did a $2.5 billion 4-part deal and garnered 10x interest book and tightened in -35bps from the initial price talk.
- Looking ahead, Monday will be a busy day for primary issuance. Talks of over 10 deals and projecting about $30 billion of new debt.
- Year-to-date run rate 62% ($1.62 trillion).
- Month-to-date $2.5 billion (-83% YoY).
- Week-to-date $2.5 billion vs $8 billion expected.
Corporate New Issue Highlights
Waste Management $2.5bln 4-Part Deal
- $500m 5Y Fixed (Nov. 15, 2025) at +45
- $500m Long 7Y Fixed (March 15, 2028) at +60
- $1b Long 10Y Fixed (March 15, 2031) at +75
- $500m 30Y Fixed (Nov. 15, 2050) at +100
- Municipals rallied with Treasuries on the heels of the election flattening the curve with benchmark yields 2-14bps lower on the week.
- With the likely results of the election being a divided government municipals may face some headwinds with the diminished likelihood of tax increases and large scale aid to state and local governments, although recently Sen. McConnell seems to be warming to the idea of some additional aid.
- Georgia Senate may be heading towards 2 runoff elections in Jan 2021 with both races shy of the 50% threshold needed to claim victory.
- Investors pulled money from municipal bond mutual funds heading into the election with outflows of $954 million for the week ended 11/4.
- The market priced just $1 billion this week compared to $70 billion+ over the last month. 30-day visible supply sits at $7.6 billion.
- Next week issuance is expected to be around $2.6 billion. Notable deals include; California Earthquake Authority $300 million, City of Portland OR Sewer $223.8 million.