Wednesday, May 13, 2020 |
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| MANAGING DIRECTOR: Scott Carrithers PORTFOLIO SALES AND SERVICE: Steve Panknin • George Morris • Jeff Goble • Chris Thompson • Sean Doherty Kevin Doyle • Lonnie Harris • Mark Tranckino • Robert Schuyler • Tom Toburen • Josh Kiefer Nicole Burczyk • Natalie Regan • Aaron Stoffer • Chuck Honeywell |
| US Treasury Market | |||||||||||
| Date | 1 mo | 3 mo | 6 mo | 1 yr | 2 yr | 3 yr | 5 yr | 7 yr | 10 yr | 20 yr | 30 yr |
| 05/06/20 | 0.08 | 0.12 | 0.16 | 0.16 | 0.17 | 0.24 | 0.37 | 0.57 | 0.72 | 1.16 | 1.41 |
| 05/07/20 | 0.10 | 0.11 | .014 | 0.15 | 0.13 | 0.19 | 0.29 | 0.49 | 0.63 | 1.05 | 1.31 |
| 05/08/20 | 0.10 | 0.12 | 0.15 | 0.15 | 0.16 | 0.21 | 0.33 | 0.53 | 0.69 | 1.12 | 1.39 |
| 05/11/20 | 0.09 | 0.12 | 0.16 | 0.16 | 0.17 | 0.24 | 0.36 | 0.56 | 0.73 | 1.16 | 1.43 |
| 05/12/20 | 0.10 | 0.13 | 0.16 | 0.16 | 0.17 | 0.22 | 0.34 | 0.53 | 0.69 | 1.11 | 1.36 |
Source: U.S. Department of the Treasury, as of 05/12/2020
Lender of Last Resort
At the same time the Fed began to purchase corporate ETF’s, they also released the term sheet for U.S. states and cities. The rates charged will not be cheap, but are in line with the Fed’s long-term intention for its loans to be “last resort financing”.
Municipalities with pristine AAA ratings would need to pay an extra 1.5 percent above an overnight indexed swap rate. That will appear high to cities and states whose one year benchmark debt levels are yielding under 0.5%.
Additionally, AA credits will pay 170 basis points above and the scale goes all the way down to those below investment grade - - a whopping 590 basis point premium.
With the Fed establishing the program as a backstop, hopefully municipal issuers should be able to borrow efficiently and only access the funding if the markets are not working properly.
These bridges may get more permanent reinforcements as the House of Representative’s latest round of stimulus unveiled yesterday, dubbed the Hero’s Act, totaled 3 trillion including 1 trillion for state and local governments. Although probably ultimately not that large, it is definitely anticipated than any future stimulus will include aid for state and locals.
Below please find an update on global 10 year benchmark securities rates. As you can see, the U.S. continues to be higher than most of the world’s issuers, although at a much lower level than prior to the pandemic.
At the same time the Fed began to purchase corporate ETF’s, they also released the term sheet for U.S. states and cities. The rates charged will not be cheap, but are in line with the Fed’s long-term intention for its loans to be “last resort financing”.
Municipalities with pristine AAA ratings would need to pay an extra 1.5 percent above an overnight indexed swap rate. That will appear high to cities and states whose one year benchmark debt levels are yielding under 0.5%.
Additionally, AA credits will pay 170 basis points above and the scale goes all the way down to those below investment grade - - a whopping 590 basis point premium.
With the Fed establishing the program as a backstop, hopefully municipal issuers should be able to borrow efficiently and only access the funding if the markets are not working properly.
These bridges may get more permanent reinforcements as the House of Representative’s latest round of stimulus unveiled yesterday, dubbed the Hero’s Act, totaled 3 trillion including 1 trillion for state and local governments. Although probably ultimately not that large, it is definitely anticipated than any future stimulus will include aid for state and locals.
Below please find an update on global 10 year benchmark securities rates. As you can see, the U.S. continues to be higher than most of the world’s issuers, although at a much lower level than prior to the pandemic.
This information is intended for institutional investors only. The material provided in this document/presentation is for informational purposes only and is intended solely for private use. Past performance is not indicative of future results. This material is not intended as an offer or solicitation for the purchase or sale of any financial instruments.
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