USD Swaps: Fast-moving market awaits lagging indicator

Calm 23 Nov 2020
While Thursday saw an uplift in USD bond issuance in quiet conditions, today is just quiet. Traders question NFP's potency, BNPP eyes its headline.

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  • Fast-moving market awaits lagging indicator  

  • BNPP: Diffusion the key to NFP interpretation

  • New issues


    Fast-moving market awaits lagging indicator

    While Thursday saw something of an uplift in USD bond issuance, led by a $10bn, four-tranche offering from Meta, that side of the fixed income market has fully reverted to type for this NFP Friday, with no new deals appearing in the pipe as market participants keenly await delivery of the latest piece of the inflation versus recession jigsaw puzzle.


    So far today USTs are unsurprisingly content to tread water, with 10y yields +1bp at 2.69% and the curve is pretty quiet with 2s/10s -1bps and 10s/30s unch. In swap spreads so far today there is a gentle flattening trend, with 2y swap spreads currently +0.25bps at -2.5bps, 5y is +0.25bps at -24bps, 10y is flat at -22bps and 30y is unch at -57bps.


    While NFP retains its cachet as the heavyweight US data release, one swapper said today that CPI was the more keenly scrutinised of the big releases at the moment, in part due to NFP’s slight usurpation by smaller but more nimble employment indicators.


    The London-based trader said this morning that “one thing that will be on people’s minds is that NFP is a bit more backward-looking than other data, such as Tuesday’s JOLTS job openings data that showed vacant positions slightly down on expectations (10.698m versus 11m expectations for June).”


    “I think there is a fairly high expectation for NFP and given the slight time lag, I think it would have to be an extremely high number to hit USTs significantly,” he added. As rates rise, the market is desperate to know what's happening next, rather than what's just happened, he explained. 


    Meantime, reflecting on the first real day of summer trading conditions yesterday, and today’s slow start, the swapper said “the Bank of England yesterday gave people (across markets) an excuse to do very little yesterday. And today it’s Friday, it’s August, people are very happy to sit back and do the square root of nothing. Ideally for at least a couple of weeks.”


    BNPP: Diffusion the key to NFP interpretation

    Strategists at BNP Paribas this morning published a preview of the imminent July NFP release. It said that: “The strength of the labor market should continue to be evident in the July non-farm payrolls report, which we expect will continue to show a slowing (but still well above-trend) growth. Specifically – we look for payroll growth to register 280k on the month – down from 372k in June and moderately above consensus expectations of 250k. This should push back against the notion that the economy is sliding into recession in H2. The unemployment and labor force participation rate should remain steady at 3.6% and 62.2%, respectively.”


    “Since the topline hiring figure could hide underlying weaknesses if a few dominant sectors mask foundering activity elsewhere, another critical aspect to watch will be the breadth of job creation, or diffusion. This indicator, which typically rolls over ahead of recessions, remains at elevated levels, and actually turned higher in June.”


    “Finally,” it concluded, “the jobs report will allow us to ma​ke an initial estimate of household wage and salary disburse​ments. This is crucial to understanding if household income continues to keep ahead of inflation. If so, consumers should be able to keep driving economic growth. We expect the report to show average hourly earnings rising by 0.3% m/m.”


    New issues:  

    • Meta Platforms last night priced a $10bn 4-part ($2.75bn 5y, $3bn 10y, $2.75bn 30y and $1.5bn 40y). Leads are Barclays, BofA, JPM and MS (B&D). A1/AA-. +75bps, +115bps, +145bps and +165bps.


    • Advisor Group last night priced a $500m, 5y NC2 8.625% high yield secured bond to yield USTs +586bps via BMO, BofA, Truist and UBS.


    • Citizens Bank yesterday priced an $800m 6y NC5 fixed to FRN. Leads are Barclays, CS, JPM and MS. Baa1/A-. +180bps.


    • Ashtead yesterday priced a $750m 10y. Leads are BofA, Citi and JPM. Baa3/BBB-/BBB. It came at USTs +295bps.


    • HSBC last night priced a $4.75bn 2-part ($2.25bn 6y NC5 fixed to FRN and $2.5bn 11y NC10 fixed to FRN). Self-led. A3/A-. +245bps and +275bps.  


    • Lloyds Group yesterday priced a $2.5bn 2-part ($1.25bn 4y NC3 fixed and $1.25bn 11y NC10 fixed). Leads Citi, Lloyds, Scotia and TD on 4y NC3. Leads Citi, GS, Lloyds, TD and WFS on 11y NC10. A3/BBB+.  It came at USTs +175bps and +230bps.


    • Standard Chartered yesterday priced a $1.25bn perpNC5.5 AT1 7.75% bond at par. Leads Barclays, Citi, GS, SocGen and StanChart. Ba1/BB-/BBB-.