USD Swaps: USTs bull flatten; $34bn issuance floods in

Floodgate 9 Nov 2020
USTs rallied with the back end leading. IG new issuance saw 19 issuers cross the finish line to price just over $34bn. Spreads narrowed.

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  • USTs bull flatten; $34bn issuance floods in 

  • New issues


    USTs bull flatten; $34bn issuance floods in

    Treasuries bull flattened to start 2023, with the 10y note yield last 9bps lower at 3.788% while 2s10s is last 6bps flatter at -61.8bps and 5s30s 3bps lower at -5.7bps. Equities ended down but off the intraday lows (DJIA -0.25%, S&P -0.61% and Nasdaq -0.76%).


    IG new issuance (ex-SSA) saw a banner start to the year as just over $34bn priced across 19 issuers – the largest coming from a Sumitomo Mitsui $5.8bn 4-part, followed by a $5bn 4-part senior non-pref from Societe Generale and a $4bn 2-part from UBS.  With today’s haul, only another $6bn is needed to reach the upper end estimates for this week’s volume.  


    Swap spreads stayed tighter amid the influx of issuance supply and the belly of the curve led the move. Looking at specifically at the front end of the spread curve, analysts at Citigroup see further scope for front end spreads to narrow and the bank remains biased short spreads expressed via selling FV SOFR invoice.


    As for what the potential bottom for 2y spreads is for this year, Citigroup points out that “in theory 2y spreads should not cheapen up back to 2019 levels in H1 of next year due to the abundant cash in RRP which limits how cheap repo can get to in the next two years” and for example, the bank sees that “1y1y forward spreads are likely not going to reach levels last seen in 2018/2019 since it’s too early to project a Sept19 reserves scarcity scenario at this time.”


    Citigroup expect bills minus reserves “to increase to ~$1.5tn to $2tn next year by the end of 2023 (following the debt ceiling)” which thus implies “2y spreads trading around -10bp” which it notes is “significantly wider than valuations in the previous QT cycle.” This is “due to the amount of cash held in the RRP facility which was not the case during the previous QT,” Citigroup explains


    In 2023, Citigroup expects the level of around “-15bp to -20bp for 2y spreads” to be achieved eventually, but it notes that level “may need to wait until after the debt ceiling is either suspended or increased in Q4 in 2023. “Given the abundance of funds in the RRP facility we don’t see valuations falling back to -20bp to -30bp until RRP is closer to fully drained,” it adds.


    Currently, SOFR swaps 2s 2bps (-0.625bps), 3s -17bps (-1bps), 5s -27bps (-1.625bps), 7s -35.125bps (-0.875bps), 10s -33.75bps (-1.5bps), 20s -69.5bps (-0.625bps), 30s -77bps (-0.5bps).



    New issues


    • Posco is working on a $TBA 3-part (3y, 5y and/or 10y). Leads BNP Paribas, Citigroup, Credit Agricole, HSBC, Standard Chartered. Baa1/A-.     


    • EIB plans a $TBA 5y benchmark. Leads Barclays, Citi, TD. Aaa/AAA/AAA. Price talk SOFR MS +41bps. Expected to price tomorrow.  


    • Hong Kong SAR has mandated Credit Agricole, HSBC, Citigroup and JPM for a series of investor meetings ahead of USD and EUR denominated offerings. It also plans a CNH denominated issuance.  Aa3/AA+/AA-. Expected tranches include USD 3y, 5y and 10y, EUR 2y and 7y and CNH 2y and 5y Green bonds.


    • TD Bank launched a $2bn 2-part ($750m 3y and $1.25bn 5y). Self-led. A1/A. +95bps and +125bps. It dropped plans for a 3y FRN.


    • SMFG launched a $5.8bn 5-part ($1.5bn 3y fixed, $300m 3y FRN, $1.5bn 5y, $1bn 7y and $1.5bn 10y). Self-led. A1/A-. +130bps. SOFR +143bps, +160bps, +185bps and +200bps.


    • Societe Generale launched a $5bn 4-part SNP ($1.25bn 4y NC3 fixed to fixed, 6y NC5 fixed to fixed, $1.5bn 11y NC10 fixed to fixed, $1bn 30y sub fixed). Self-led. Baa2/BBB/A- for first 3 tranches and Baa3/BBB-/BBB for the 30y. +230bps, +255bps, +295bps, +350bps. It dropped plans for a 4y NC3 FRN. All SNPs – senior non-preferred.


    • UBS Group launched a $4bn 2-part ($1.75bn 4y NC3 and $2.25bn 11y NC10). Self-led. A-/A+. +155bps and +220bp.   


    • MetLife launched a $2.15bn 4-part FA-backed ($650m 3y, $500m 5y and $1bn 31y). Leads BofA, DB, HSBC, JPM and MS. Aa3/AA-/AA- for first two tranches and A3/A-/A- for 31y. +83bps, +113bps and +140bps. It dropped plans for a 3y FRN.  


    • John Deere Capital launched a $2.3bn 2-part ($1.2bn 3y fixed and $1.1bn 5y). Leads DB, BofA, GS, RBC. A2/A. +65bps and +85bps. It dropped plans for a 3y FRN.


    • Caterpillar Financial launched a $900m 3y fixed. Leads Barclays, JPM, SocGen. A2/A/A. +63bps. It dropped plans for a 3y FRN.


    • Ford Motor Credit launched a $2.75bn 3-part ($1.3bn 3y fixed, $300m 3y FRN and $1.15bn 7y). Leads DB, BofA, HSBC, Mizuho and RBCCM. Ba2/BB+/BB+. 7%, SOFR +295bps and 7.375%.  


    • Commonwealth Bank of Australia priced a $1.5bn 2-part ($1.2bn 2y fixed and $300m 2y FRN. Leads CBA, HSBC, JPM, WFS. Aa3/AA-/A+. +68bps and SOFR +63bps.


    • Duke Energy Carolinas priced a $1.8bn 2-part ($900m 10y and $900m 30y). Leads MUFG, CS, JPM, Mizuho, RBCCM, WFS. Aa3/A. +120bps and +145bps.  


    • Santander UK priced a $1.25bn 6y NC5 fixed to FRN. Self-led. Baa1/BBB/A. +260bps.  


    • Entergy Arkansas priced a $425m 10y FMB fixed. Leads JPM, Mizuho, SMBC, Steph and USB. A2/A. +140bps.


    • Targa Resources priced a $1.75bn 2-part ($900m long 10y fixed and $850m 30y fixed). Leads MUFG, RBCCM, TD and TSI. Baa3/BBB-/BBB-. +235bps and +275bps.   


    • United Mexican States priced a $4bn 2-part ($1.25bn 5y and $2.75bn 12y). Leads BBVA, BNPP, BofA and JPM. Baa2/BBB/BBB-. +150bps and +260bps.  


    • Consumers Energy priced a $425m 5y FMB fixed. Leads GS, MS, RBCCM, WFC. A1/A/A+. +75bps.


    • Public Service Co. of Oklahoma priced a $475m 10y. Leads WFS, CIBC, CACIB and TSI. Baa1/A-/A-. +150bps.


    • Protective Life priced an upsized $600m 3y FA backed fixed. Leads Mizuho, MS and PNC. A1/AA-/AA-. +118bps. Upsized from $300m.   


    • Enterprise Products Operating priced a $1.75bn 2-part ($750m 3y and $1bn 10y). Leads BofA, JPM, MS and RBC. Baa1/BBB+/BBB+. +90bps and +160bps.


    • Commonwealth Edison priced a $975m 2-part ($400m 10y and $575m 30y). Leads USB, BofA and BNPP. A1/A/A. +115bps and +140bps.  


    • Oklahoma Gas and Electric priced a $450m 10y. Leads MUFG, JPM and USB. A3/A-/A.  +165bps.  


    • Connecticut Power and Light priced a $500m 30y FMB fixed. Leads MUFG, Barclays, Citi, GS and TD. A1/A+/A+. +135bps.