GS: Reduced Spd Sensitivity To IG Issuance May Mean Diminished Hedging

Goldman Sachs note that "soaring issuance has been in focus for both Treasuries and corporate bonds this year as both markets will set new issuance records in 2020. In the past, medium to long-term financial issuance has been associated with local pressure on spreads on a residual to our swap spread model, where higher supply is loosely correlated with relative spread tightening; this correlation is likely on account of issuance-related hedging. Since April however, spreads have generally outperformed our model as Treasuries have been well-supported versus swaps, with the monthly residual consistently wider than what we would expect given the historical relationship with financial issuance. We believe that, among other things, this likely reflects reduced hedging demand given the low absolute level of yields and comparatively flat curve."