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WEEKLY FIXED INCOME UPDATE

For the week of July 13, 2020

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CHART OF THE WEEK: U.S. HIGH YIELD MARKET QUARTERLY GROSS NEW ISSUANCE

The U.S. high-yield bond market saw record new issuance recently. Our Chart of the Week shows $146 billion of gross new issuance for the second quarter, with $61 billion of new supply in June alone making it the largest month on record. The U.S. Federal Reserve’s April announcement that it would be including fallen angel credits in its corporate liquidity facilities has fueled new issuance.

WEEK IN REVIEW

Longer-maturity U.S. Treasury yields ended the week lower as investor concern over a slower economic recovery grew from the rise in COVID-19 cases in the U.S. However, risk assets were generally positive and non-Treasury sectors had strong returns on the week.

The U.S. Federal Reserve's (Fed) balance sheet contracted last week for the fourth consecutive period. Modest securities purchases were offset by a contraction in domestic repo outstanding and diminishing use of foreign central bank swap facilities. This implies that the Fed backstop is enough to maintain smooth market functioning without the need to resort to large outright lending through the new facilities. 

Both initial and continuing claims for unemployment insurance are declining gradually after rising extremely sharply. This asymmetry has been less damaging for the economy in the short-run than it could have been due to massive, immediate income transfer and loan programs that prevented the unprecedented layoffs from exerting very large second and third round effects that would have resulted from cuts in consumer spending and business failures. Since most of the programs – family assistance payments, payroll protection loans and supplemental unemployment insurances benefits – have already expired or are about to very soon even as massive job loss remains, it is important for Congress to pass legislation that provides ongoing support for the economy.

THE WEEK AHEAD

Tuesday
Consumer Price Index

Wednesday
Industrial Production

Thursday
Jobless Claims, Philadelphia Fed Business Outlook Survey, Retail Sales

Friday
Housing Starts





   

Index Returns

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1 Week YTD 1-YR 3-YR 5-YR
U.S. Aggregate 0.42 6.71 9.51 5.59 4.48
IG Corporates 0.68 6.07 10.60 6.63 5.88
HY Corporates 0.28 -3.79 -0.27 3.37 4.82
Bank Loans 0.33 -4.24 -2.01 2.26 3.03
IG Corporates 1-3 Year 0.06 2.78 4.75 3.44 2.83
Global Aggregate 0.68 3.85 5.65 4.30 3.80





   
   
      
      

TREASURY RATES

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Latest 1-YR Low 1-YR High 1-WK Change YTD Change 1-YR Change
2 Year 0.15 0.13 1.89 0 -142 -166
5 Year 0.31 0.28 1.89 1 -139 -150
10 Year 0.64 0.57 2.14 -2 -127 -140
30 Year 1.34 1.12 2.65 -9 -105 -122





   
   
      
      

CREDIT SPREADS

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Latest 1-YR Low 1-YR High 1-WK Change YTD Change 1-YR Change
IG Corporates 143 93 373 -1 50 30
HY Corporates 597 315 1100 -3 261 225
EM Aggregate 400 278 720 0 99 117
CMBS 126 60 260 -6 54 60
MBS 63 28 115 -4 24 21
ABS 66 27 325 -2 22 26





   
      
      

OTHER INDICATORS

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Latest 1-WK Change YTD Change 1-YR Change
S&P GSCI 337.90 5.04 -98.32 -96.22
Crude Oil - WTI ($) 40.55 -0.10 -20.51 -19.88
Trade Weighted Dollar* 128.01 0.00 -0.60 0.68
5-Yr Breakeven Inflation Rate (%) 1.25 0.02 -0.45 -0.35

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