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Munichain Market Perspective #13

By Matthew Gerstenfeld
Market Perspective

Primary supply is positioned to expand over the course of the week, with the majority of new issue proceeds designated towards infrastructure projects. Waning issuance over the course of Q3 generally stems from greater macro market volatility, driving a substantial amount of issuers to the sideline.

Last week’s trading session reaffirmed market-wide sensitivity towards economic headlines after July’s employment figures. The substantial increase in nonfarm payrolls landed far beyond market estimates after +528k jobs were added, marking a return to the pre-pandemic unemployment rate of 3.5%.

Treasury yields soared following the report, after markets factored a higher likelihood of additional Fed interest rate hikes to combat national inflation. As participants prepare for extended quantitative tightening, fears of further economic pain continue to radiate across the market given the evolving macro landscape. Such fear has translated into lower primary volumes relative to 2021, as issuers actively assess climbing borrowing rates coupled with surging costs for goods and services.

US treasuries faced greater momentum last week, bear flattening by 14-31 basis points, with the 5YR tenor settling at 2.97% or 14bps above the 10YR which landed at 2.83% to finish the week. Muni benchmarks outperformed the trajectory of treasuries, widening by 3-6 basis points across the curve, with the greatest outperformance noted in the front end.

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