Significant policy changes are becoming nearly daily occurrences

Monetary and fiscal policy developments continue at an incredible pace, with significant policy changes becoming nearly daily occurrences. Additional monetary policy actions taken on March 17, 2020 include support for the $1.1 trillion Commercial-Paper market and a dealer lending facility, supporting system liquidity and function. The bigger focus yesterday was on the $1.2 trillion fiscal package.

While the risk tone was better prior to March 17, clearly we are back to risk off as of March 18, 2020.

U.S. credit markets

Investment grade: Spreads the morning of March 18 were shown +268 basis points (bps). For context, about 250 basis points has marked past recessions, but we shot well wide of this for 9 months during the financial crisis. Year to date as of March 17, investment grade returns were -4.5% (-7.9% month-to-date). The primary market was open for a few deals on March 17, which continued to drive credit repricing even with the constructive tone. 

High yield: Spreads were weaker again as of March 18, with option-adjusted spread around 870. We are now close to February 2016 wides. Historically, high yield cyclical wides are roughly around 1200. U.S. high yield returns were down -13.1% year-to-date as of March 17 (-11.75% month-to-date). Oil hit $25 on March 18, which will continue to weigh on the market.

We have been a bit surprised by front end liquidity which remains poor as a lot of cash raising has been done here. We are noticing flat to inverted curves. We have room to be a provider of liquidity but have stepped back this week given volatility and a view that risk will continue to underperform while virus fears increase.

Treasuries have been a bit more stable today and performing as expected on fiscal stimulus.


  • High yield markets are exhibiting stress. We are staying focused on higher quality credits.
  • We believe that government organizations should be less volatile than most non-essential service revenue bonds through this uncertainty.
  • There may be some opportunities potentially emerging near-term with municipal floating rate notes.
  • Most importantly, stay patient. As a reminder, the Bloomberg Barclays Municipal Bond Index, while declining 2.47% during calendar 2008 in the depths of the financial crisis, went on to post a 12.91% total return during 2009.
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The Bloomberg Barclays Municipal Bond Index is considered representative of the broad market for investment grade, tax-exempt bonds with a maturity of at least one year.

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