Weekly Fixed Income Views from October 16, 2020
- Yields were mixed on the week, with the curve lower heading into Friday’s close.
- The yield on the 10-year opened the week around 0.776%, currently trading around 0.745%.
- The flattening of the curve helped push Treasury prices slightly up, as the spread between the 5-year & 30-year bond hovered around 120bps.
- Despite the stronger than expected retail sales data, the curve remains mostly unchanged and the focus remains heavily weighted on market sentiment and stimulus talks.
- The corporate spread for the iShares iBoxx Investment Grade Corporate Bond ETF, LQD, was approximately flat to 1bps tighter this week.
- The Federal Reserve’s Secondary Market Corporate Credit Facility Program (SMCCF), reported $4.3 billion of bond purchases as of 9/30/2020 and $8.6 billion of bond ETF purchases.
- Bond purchases were focused in the consumer non-cyclical and consumer cyclical sector.
- Bond ETF purchases included core IG funds such as LQD and VCIT.
- Primary issuance was low this week versus the projected amount as issuers delayed new deals; the hesitation may be attributed to the presidential election around the corner.
- Week-to-date: $5 billion vs $15 billion expected
- Year-to-date run rate: 68% ($1.57 trillion)
- Morgan Stanley was the first among the banks to issue new debt after reporting corporate earnings; banks typically issue new deal after corporate earnings.
Corporate New Issue Highlights
Toyota Motor Credit $2.75 billion 3-part deal
- $1.15b 2Y Fixed (Oct. 14, 2022) at +25
- $600m 2Y FRN (Oct. 14, 2022) at SOFR Equiv+34
- $1b 5Y Fixed (Oct. 16, 2025) at +53
Franklin Resources $750 million 10-year
- $750m 10Y Fixed (Oct. 30, 2030) at +90
China $6 billion 4-part deal (interest book grew to $20 billion)
- $1.25b 3Y Fixed (Oct. 21, 2023) at +25
- $2.25b 5Y Fixed (Oct. 21, 2025) at +30
- $2b 10Y Fixed (Oct. 21, 2030) at +50
- $500m 30Y Fixed (Oct. 21, 2050) at +80
- Municipals underperformed Treasuries on the week with benchmark yields 1bps lower across the curve.
- With record low rates and uncertainty surrounding the election, state and local governments are coming to market in record numbers to avoid volatility in the coming weeks.
- 30-day visible supply is currently $26 billion and expected to rise with deals issued on short notice.
- Taxable issuance, due largely to refundings, makes up approximately 30% of total issuance, providing some anchoring to tax-exempt yields in this elevated supply environment.
- Municipal bond funds continued to see inflows; $614 million for the week ended 10/14.
- The prospect of an additional stimulus deal in Washington before the election appears unlikely as both sides disagree on the size and composition of the spending bill with neither parting willing to concede a political victory to the other.
- Notable deals next week include; Alabama Public School and College Authority $1.48 billion, State of California $1.11 billion, State of Hawaii $1.05 billion, State of Illinois $850 million.