U.S. Corporate Bonds (Jan 27-31): Going Green Gains Steam

JFM Eyes Green Bond Sale to Help Shore-up Sewerage System

Investment-grade corporate bond sales are set to slow in the week ahead, amid monetary policy decisions from the Federal Reserve Open Market Committee (FOMC), as well as from the Bank of England.

Deals in the week ahead could amount to roughly US$20bn, if market conditions remain sufficiently calm, after nearly US$26bn worth of fresh, high-grade debt sales priced in the past week.

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Ultra-low levels of U.S. interest rates have generally been spurring issuers’ desire to sell new bonds. To date in January, a little more than US$134bn of fresh offerings have priced, compared to expectations for roughly US$122bn – and a spike of around 46% more than the prior-year period.

Meanwhile, flight-to-safety purchasing of U.S. Treasuries has generally depressed rates further, amid fears of the global spread of a new deadly coronavirus emanating from China, as well as some downbeat domestic manufacturing data from IHS Markit.

The yield on the 10-year U.S. Treasury note has sunk roughly 18 basis points since its January high of 1.87%, and at the time of writing, was trading at around 1.606%. The yield on the 2-year note has also staged an inversion compared to the 5-year note, with levels in Monday’s pre-market trading at 1.431% and 1.423%, respectively.

Market participants also widely anticipate the Fed to stand pat with its target range on the fed funds rate at 1.50%-1.75%, despite a slower pace of improving operating conditions among manufacturing firms in January.

IHS Markit economist Siân Jones noted that further signs of “historically soft price pressures will come as no surprise to the FOMC,” which should bolster the market’s expectations of a hold in the policy rate. She added that muted increases in costs and output charges “reportedly stemmed from both producers and suppliers increasing their efforts to boost sales.”

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The IHS Markit Flash U.S. Manufacturing Purchasing Managers’ Index (PMI) fell to 51.7 in January from 52.4 in the prior month— the softest level since last October.

And the Bank Played On…

Demand for new offerings has generally been unrelenting, with inflows continuing to pour into corporate funds.

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DISCLOSURE: AUTHOR SECURITY HOLDING: NO POSITIONS

The author does not hold any positions in the financial instruments referenced in the materials provided.

DISCLOSURE: FOREX

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