USD Swaps: Spreads tighter as deals arrive; Bearish bull

Financial chart 24 Nov 2021
Dollar swap spreads are tighter as deals arrive following a BOE rate hike. A generally bullish bank turns short term bearish.

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  • BOE gloomy; Spreads tighter

  • Mildly bearish for now, long term bullish: HSBC

  • New issues: Meta, Lloyds, HSBC


    BOE gloomy; Spreads tighter  

    Treasuries are a touch steeper with the 30y at 2.97% (+2bps) and Eurodollars are 2-4bps stronger in the reds on modest read-across from the BOE MPC decision and subsequent sterling market reaction, with gilts coming back from initial highs. The MPC forecast a year of recession (in fact five (CORRECTS) quarters of negative GDP growth) for the UK economy and that grim message outweighed the Bank’s widely expected 50bps hike. Swap spreads are tighter as a range of banks and Meta launch benchmark deals, the latter out to 40y. Two-year spreads are -2.75bps (unch), 5s are -24.75bps (-0.25), 10s are -22.50bps (-1.00)  and 30s are -57.00bps (-0.75) in mildly below-par volumes.


    Mildly bearish for now, long term bullish: HSBC 

    “Shift to mildly bearish in the near-term” recommend analysts at HSBC this week, having previously suggested neutral positioning. The bank adds that 10y yields are near its 2.5% year-end forecast and well below its 3% forecast for September. HSBC continues:


    “Bond markets look forward, through the recency bias of high inflation, and to increased probability of recession. This means the focus for valuing the 10-year is now the longer-run equilibrium policy rate, not the near-term peak.”


    “There is a significant divergence between the Fed’s view, that more tightening is needed and the economy is not in a recession, and the bond market’s fear that a recession is near. If the Fed matches its 2022 and 2023 median dots, the recent 2.55% 10-year yield would imply a -80bp and -120bp inversion between the funds rate and the 10-year. Such levels are quite rare and typically seen when there are significant signs the economy is slowing. A significant slowdown in growth is priced-in the yield curve today. Lower yields are likely in the longer run, as reflected in our 2023 year-end 2.0% 10-year forecast.”


    “Given the projected inversion for the curve, something has to give, in our view: the Fed outlook  should turn more dovish, and quickly, or bond yields should see a consolidation at best, or higher near-term yields to better align with the near-term Fed outlook.”


    New issues: Meta, Lloyds, HSBC

    • Meta Platforms is preparing its inaugural bond issue comprising USD 5y, 10y, 30y and 40y tranches at around Treasuries +90, 130, 160 and 175bps, respectively. Leads are Barclays, BofA, JPM and MS. Moody’s this week rated the social behemoth at A1 assuming long term average leverage of 0.5 – 1.0x versus free cash flow of $15-40bn. S&P issued a AA- rating and expects debt to stay below cash ($40.5bn currently), along with leverage below 1x.


    • Lloyds Bank plans USD 4y NC3 and 11y NC10 bonds at around Treasuries +195 and 260bps. Via Citi, GS, Lloyds, TD, Scotia and WFS.


    • HSBC is preparing USD 6y NC5 and 11y NC10 self-led bonds at around Treasuries +270 and 300bps.


    • Citizens Bank plans a USD 6y NC5 in the region of Treasuries +195bps. Leads are Barclays, CS, JM and MS (B&D).


    • Standard Chartered is preparing a USD perp NC5.5 AT1 sub (Ba1/BB-) at around 8.125%. Leads are Barclays, Citi, GS, SocGen and StanChart (B&D).


    • Waste Connections is preparing a $500m long 10y at around Treasuries +180bps. Leads are BofA, JPM, MUFG and WFS.


    • Charter plans a $1bn 7y NC3 note through MS.


    • ONE Gas plans a $300m 10y at around Treasuries +185bps through RBC, TSI and RBC.


    • Synovus is preparing a USD 3y via GS and MS (B&D). 


    • UK equipment rental firm Ashtead Group PLC (Baa3/BBB-/BBB) plans a USD 10y via at around Treasuries +325bps via BofA, Citi and JPM.


    • ArcelorMittal (Baa3/BBB-) is preparing a USD 5y through Citi, CA, GS, JPM and Mizuho. 


    • HK’s Johnson Electric (Baa1) plans a  USD 5y bond at around Treasuries +270bps via Citi, HSBC, JPM and StanChart. 


    • KeyBank yesterday priced a $2bn 2-part ($1.25bn 3y and $750m 10y). Leads are KeyBank, BofA, GS, JPM and MS. Baa1/BBB+/BBB+. +112.5bps and +220bps.