While much of the attention surrounding SpaceX centered on its record-setting IPO, the company's $25 billion bond offering may prove just as important. The deal attracted more than $89 billion in orders, underscoring investors' willingness to fund compelling growth stories despite persistent uncertainty around interest rates. Since issuance, spreads have widened meaningfully, with the 5- and 7-year tranches outperforming the longer-dated bonds. The recent weakness in SpaceX's bonds is noteworthy - the AI infrastructure buildout depends heavily on continued access to capital markets, and if financing conditions tighten, the pace of investment could slow. At IR+M, we have favored shorter-duration investments in the sector given the longer-term risks and uncertainty. In our view, the recent spread widening is a reminder to remain disciplined - focusing on credit quality and relative value even when well-known issuers command significant investor interest.
- Markets opened the week with heightened volatility, as concerns over AI-driven growth weighed on risk assets and easing geopolitical tensions drove oil prices lower
- May PCE rose 0.4%, modestly below the 0.5% consensus forecast, while personal income and personal spending each rose 0.7% month-over-month; inflation accelerated to its fastest annual pace since April 2023, reinforcing expectations that the Federal Reserve may need to raise rates later this year
- First-quarter GDP growth was revised up to an annualized 2.1%, primarily due to a sharper decline in imports, offsetting a downward revision to personal consumption growth from 1.4% to 0.5%
- Initial jobless claims decreased to 215,000, below expectations of 225,000, while continuing claims increased to 1.82 million but stayed below year-ago levels, suggesting labor market conditions remain stable
- Treasury yields fell across the curve amid risk asset volatility and declining oil prices; the curve flattened, with the 2- and 10-year Treasury yields falling by 4bps and 10bps, respectively, to 4.15% and 4.39%
- Investment-grade (IG) supply totaled $54 billion, surpassing expectations of $50 billion, bolstered by SpaceX’s $25 billion jumbo deal; investor demand was robust with orders exceeding $89 billion, with the 5- and 7- year tranches oversubscribed by 3.4x and 2.8x, respectively
- High-yield (HY) issuance reached $5 billion on the week
- IG corporate spreads widened by 1bp to 74bps in response to the week’s wave of supply; AI-related market volatility was a headwind to HY corporate spreads, which widened 14bps to 277bps
- Agency mortgage-backed securities (MBS) outperformed other securitized sectors, supported by declining interest rates and tightening MBS spread, which narrowed 2bps to 22bps
- Municipals underperformed Treasuries as muni/Treasury ratios rose across the curve; municipal bond funds reported $1.2 billion of net inflows last week, marking the ninth consecutive week of net inflows exceeding $1 billion
