USD Swaps: Spreads edge in as deals build; HF gains; External influences

Chart red green numbers 13 Jun 2022
Spreads are edging tighter as the new issue list starts to fill, including deals from Enel and PIF. Stocks and USTs are in the red, led by the belly.

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  • Spreads edge in as deals build

  • Big hedge fund gains

  • Data

  • External influences on dollar rate markets: JPM

  • New issues: Enel, PIF, TD Bank, CCDJ, Philippines


    Spreads edge in as deals build

    Swap spreads are mostly tighter and Treasury yields are 4-7bps higher led by the belly even as S&P futures take back some of the last two days’ gains ahead of the open. Two-year spreads are 1.50bps (+1.00), 5s are -25.0bps (unch), 10s are -28.25bps (-0.25) and 30s are -74.25bps (+0.25) ahead of multi-tranche deals from Enel and PIF (see below). SOFR swap volumes are above-average led by the 5y and 30y buckets.


    Big hedge fund gains

    In the news, the FT reports that Bluecrest is up 114% for the year to date, compared to around 35% for Rokos, 32.7% for Bridgewater’s Pure Alpha, 15.5% for Caxton and 21% for Brevan Howard’s Master Fund in the year to September 23, according to a report by Dow Jones earlier this month.  Bloomberg today reports that Citadel’s Wellington multi-strategy fund is up about 29% for the year and its Global Fixed Income fund is up 24%.



    NFP may be this week’s key global data release but ADP and ISM services today, followed by initial claims tomorrow, will still add colour to the economic picture and help to confirm or deny speculation about the distance to peak rates. ADP printed at a near-consensus +208K, up slightly from last month’s revised +185K print but still well down from the 336K monthly average for 2022 to date. Ahead, the ISM Services is seen slipping to 56.0 from 56.9 after a similar fall in the manufacturing index. Later today, Fed speakers will include Kashkari and Bostic.


    External influences on dollar rate markets: JPM

    Developments in bank regulation may have helped to support a bid for swap spreads earlier this week (see Total Derivatives: SLR talk) but JP Morgan this week examines the ways in which volatility in non-domestic markets is increasingly spilling over into dollar rates (even before the RBA set the cat among the pigeons).


    • “Developments in the UK as well as Japan likely resulted in selling of liquid securities such as US Treasuries…History has shown that asset sales will be determined less by value considerations and more by just the ability to sell a large quantity, which often means selling US Treasuries…The result has been a sharp narrowing in  US Treasury swap spreads led by the front end, and spreads across the curve remain narrow to fair value in all sectors despite rebounding from their troughs”


    • “The correlated nature of the inflation backdrop has made US rates more sensitive to developments abroad, which is helping to support higher volatility in the overnight hours and making ‘2-look’ realized volatility (measured using open and closing yields) higher than close-to-close realized volatility”


    • Central bank interventions aimed at market stabilization raise the risk that “long and short rates can de-correlate going forward even rates remain correlated globally….There are no indications that US markets are anywhere close to a situation that would warrant such intervention…Nevertheless, recent developments in the UK are a reminder that US yield curve movements are not all about rate hikes. Indeed, implied correlation between 2- and 10-year swap yields inferred from yield curve spread options has recently declined, in contrast to the usual trend in a maturing hiking cycle, where rate hikes emerge as the largest single factor and correlations tend to rise.”


    Meanwhile JP Morgan continues to recommend USD 3y and 10y swap spread wideners       


    New issues: Enel, PIF, TD Bank, CCDJ, Philippines

    • Enel (Baa1/BBB+) plans USD 3y, 5y, 10y and 30y Sustainability bonds. Leads are BNPP, GS and JPM.


    • Saudi Arabian sovereign wealth fund and owner of Newcastle United FC, the Public Investment Fund (PIF), rated (A1/A), is preparing USD 5y, 10y and 100y Green bonds at around Treasuries +150 and 190bps, and 7-7.25% respectively. Leads are BNPP, Citi, DB, GS (B&D) and JPM. Books are $9bn 5y, $7bn 10y and $500m 100y. 


    • TD Bank plans a USD 60y NC5 LRCN (Baa1/BBB) via Citi, GS, Santander, SocGen, TD and WFS.


    • CCDJ is preparing a USD 3y covered bond at around SOFR +87bps. Leads are Citi, HSBC, NatWest and RBC.   


    • Philippines (Baa2/BBB+) plans USD 5y and 10y bonds plus a 25y Sustainability bond. Seen at around Treasuries +155 and 200bps, and 6.55% respectively. Leads are BofA, GS, HSBC (B&D), JPM, MS, SMBC Nikko, StanChart and UBS.