USD Swaps: Dollar direction needs confidence about rates peak

Chart numbers candles 14 Jun 2022
Treasuries are little-changed across the curve ahead of NFPs tomorrow. Banks look at the link between the dollar and peak rates.

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  • Spreads narrowly mixed

  • Brevan feeder fund lost ground last week

  • Dollar direction needs confidence about rates peak: SocGen

  • New issues


    Spreads narrowly mixed

    USTs are little-changed with the 10y at 3.76% (+1bp) following yesterday’s belly-led selloff and march wider in spreads. Swap volumes are mostly below average ahead of payrolls tomorrow except at the long end bucket and spreads are 3.00% (+0.75) in 2y, -23.125bps (+0.25) in 5y, -24.75bps (unch) in 10y and -70.75bps (unch) in 30y. S&P futures are -0.6%, the Euro Stoxx is -0.3% and IG CDS indices are little-changed.   


    Brevan feeder fund lost ground last week

    In the news, after a row of macro hedge funds reported strong results for the year to date earlier this week (see the section in Total Derivatives) Brevan Howard said that after a strong 3.29% NAV gain for  the month to September 23 (on the heels of a 3.11% rise for August), the firm’s BH Macro feeder fund lost ground in the final week of the month in the wake of the BOE’s intervention.


    Even though UST yields, gilt yields and the dollar all rose in the week to September 30, BH Macro  slipped to print a reduced 2.43% rise in NAV for the month to September 30, down from 3.29% to September 23. That left the fund up 20.67% for the year to September 30.


    Note that the underlying Master fund began September with an interest rate VaR (95%) of $45.8m and  short the long end of the GBP and USD curves, and long the dollar against European and Asian currencies.      


    Dollar direction needs confidence about rates peak: SocGen

    In the research, FX analysts at SocGen await tomorrow’s labour market report and/or next week’s CPI data to “confirm or reject the idea that a 75bp hike is pretty much baked in for November 2, and a big policy pivot is unlikely yet.” Before the latest brace of Fed-critical data, the bank mulls the outlook for the dollar:  


      “We might finally have priced in peak Fed Funds. We might just about have seen the best level for DXY. Certainly, the next 10% move in DXY seems much more likely to be down than up. But not yet.”


      “The war in Ukraine and the energy crisis still leaves the European currencies almost unbuyable except for short-term trading. The ‘Soft landing, Fed pivot, buy risk, buy EMFX’ trade may work in a while, but hard landing risks haven’t gone away given the Fed’s need to squash inflation.”


      “In any case, Fed Funds futures won’t price lower rates confidently while every Fed speaker is emphasizing the need to get rates high enough and then keep them there. For now, the danger is that the dollar neither goes up in a straight line, or starts its long descent. Like the top of most very high mountains, this dollar peak has thin air, strong winds, high volatility and plenty of danger…”


    New issues:

    • First Abu Dhabi Bank is preparing a USD 5y Green bon at around Treasuries +145bps. Leads are Citi, DB, FAB, Mizuho and StanChart (B&D).


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


    • TD Bank plans a USD 60y NC5 Limited Resource Capital Note (LRCN) in the region of 8.5%. Leads are Citi, GS, Santander, SocGen, TD and WFS. Baa1/BBB. 


    • Turkey is preparing a USD 3y Sukuk at around 10%. Books above $3.5bn. Leads are Citi, DUBAII, NBD and HSBC (B&D).


    • Philippines (Baa2/BBB+) yesterday priced a $2bn 3-part ($500m 5y, $750m 10y and $750m 25y Sustainability bond). Leads are BofA, GS, HSBC (B&D), JPM, MS, SMBC Nikko, StanChart and UBS. +120bps, +185bps and 6.1%%.


    • Saudi Arabia’s Public Investment Fund (PIF) yesterday priced a $3bn sale of Green bonds ($1.25bn 5y, $1.25bn 10y and $500m 100y). Leads are BNPP, Citi, DB, GS (B&D) and JPM. +125bps, +165bps and 6.7%.