USD Swaps: BoJ eyed as instigator of UST selling

Chart green 25 Mar 2021
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With the defense of the Yen versus USD by the BoJ in FX markets, speculation rose that the BoJ was behind the trigger of sales in USTs today.

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  •  BoJ eyed as instigator of UST selling  

  • New issues

     

     BoJ eyed as instigator of UST selling       

    Treasuries stabilized at the new lows probed earlier today, with yields 5.5 to 17bps higher, with the selloff led by the 7y. The 10y note yield is last 3.704% or 17bps higher on the day while 2s10s whipped back steeper by 10bps – nearly reversing out the flattening done yesterday to end -41.8bps. Meanwhile 5s30s ended flatter still with a 3.4bps drop to -29.8bps. Equities closed down (DJIA -0.36%, S&P -0.14% and Nasdaq -1.37%).  

     

    Speculation on the source of the selling today settled on the possibility of central bank selling – specifically that of the BoJ as it worked to defend the JPY in the currency markets versus the USD. “This looks like sovereign intervention defending the Yen. People think today is because the BoJ was selling Treasuries,” suggested a source. 

     

    That said, if it was the BoJ, then the question is whether further CB intervention and selling of USTs is coming in the days, weeks ahead. Meanwhile, one source looking at the level of rates felt that “at some point USTs are going to start looking attractive versus equities as the 4% yield in the 2y looks pretty attractive.” Looking at stocks, a trader regarded equities haven’t really fallen out of bed post-FOMC and have “held up relatively well thus far.”

     

    Swap spreads narrowed, with the 3y spread narrowing in the most with an over 4.75bps tightening down to -12.75bps before a slight bounce. One trader noted that illiquidity in the markets was apparent yesterday in the wake of the FOMC, with dealers turning down/timing out of RFQs on electronic platforms.

     

    As for the $15bn 10y TIPS auction, the large concession prior resulted in a strong auction - 3bps through the 1pm level (for more please see USDi). 

     

    Currently, SOFR swaps 2s 13.375bps (-0.375bps), 3s -11.875bps (-3.75bps), 5s -19.75bps (-1.5bps), 7s -27.25bps (-1.5bps), 10s -23bps (-1.5bps), 20s -60.75bps (-1.75bps), 30s -60.25bps (-1.25bps).

     

     

    New issues

     

    • Citigroup priced a $2.75bn 4y NC3 fixed to FRN benchmark. Self-led.  A3/BBB+/A.  +148bps area. It dropped plans for a 4y NC3 FRN.

       

    • WEC Energy priced a $900m 2-part ($500m 3y and $400m 5y. Leads WFS, Barclays, JPM, MIZ and TD.  Baa1/BBB+/BBB+. +90bps area, +155bps area.

       

    • Ohio Edison priced a $300m long 10y, Leads MUFG, PNC and RBC.  A3/BBB/BBB+. +185bps.

       

    • Digital Realty Trust priced a $550m long 5y. Leads BofA and SMBC.  Baa2/BBB.  +165bps.

       

    • Blackstone Private Credit priced an upsized $600m 3y. leads BofA, Citi, TSI and WFC.  Baa3/BBB-.  +320bps.