USD Swaps: CPI talk as curve flattens pre-Powell

Fed Powell desk 10 Jun 2020
USTs are flatter and spreads are a tad tighter as Fed Chair Powell's appearance approaches, to be followed by CPI on Wednesday.

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  • CPI key as curve flattens pre-Powell

  • New Issues


    CPI key as curve flattens pre-Powell  

    Dollar swap spreads are edging tighter today but continue to hold in their recent ranges after tightening through late December and early new year ahead of the seasonal pick-up in issuance. Five-year spreads are around -27.25bps (-0.50), 10s are -34.25bps (-0.25) and 30s are -74.25bps (-0.125) with a slug of shorter-dated swapped deals on the slate from AIIB, EIB, OKB, CDC, BPCE and Kommunalbanken. In Treasuries, the curve is a touch flatter as yields back up by 4-5bps at the front end with the 2y note at 4.26% (+5bps) and the 10y at 3.58% (+5bps) before Fed Chair Powell’s appearance at a Riksbank conference to discuss central bank independence.  SOFR swap volumes are mostly running above-average, led by the 30y bucket.


    In the news, NSA CPI yesterday traded last at 6.37119% (see Total Derivatives SDR) implying an index print of around 296.565, slightly under the Bloomberg survey forecast of 296.699 (6.41925% implied).


    Elsewhere, the latest JP Morgan Client Survey shows a sharp drop in net short positioning with the ‘All client’ balance rising to 0% in the week to Jan 9 from -13% in the week to Jan 3, while the ‘Active client’ balance grew to -11% from -44%. The move came as 10y Treasuries rallied by 20bps.


    Indeed, even the generally wary macro analysts at Barclays acknowledge a “good start to the year” in their latest research, and recommend going “tactically positive” risk assets going into tomorrow’s CPI data. Barclays explains its cautious, near term optimism: 


      “Our medium-term views have not changed: both equities and credit spreads have downside risk. We think markets are pricing in too many fed funds cuts in 2023, despite the Fed urging otherwise. Moreover, consensus earnings expectations look far too optimistic, especially in the US.”


      “And we struggle to see a soft landing, where wages and inflation slow down enough without heavy job losses”


      “But for the near term, the ‘falling inflation but decent growth’ narrative likely has some room to run. Goods deflation, helped by the energy price decline, should push inflation lower for a few months. Moreover, unusually warm weather has led to a collapse in European gas (30-50% since early  December) and electricity prices”


      “Eventually, 2023’s sharp hikes will start hitting Western economies to a greater extent. That should inevitably be accompanied by job losses, and a sustained slowing in nominal wages. Central banks will likely err on the side of fighting overheating risks for the next several quarters. In other words, medium-term hurdles to risk assets are still firmly in place. But given the near-term narrative, we turn tactically positive risk going into the US CPI print”


    S&P futures meanwhile are 0.5% lower so far today, after shedding early gains to end -0.1% yesterday.


    New issues   

      Saudi Arabia (A1/A) plans USD 5y, 10.5y and 30y bonds at around Treasuries +140, 170 and 210bps. Leads are BNPP, Citi, GS, JPM (B&D) and StanChart.   Books above $20bn.


    • Israel (A1/AA-) is preparing a USD 10y Green bond in the read of Treasuries +130bps. Leads are BofA, BNPP, Barclays and Citi (B&D).


    • AIIB plans a USD 5y Sustainable Global via BMO, HSBC, JPM and TD at around swaps +65bps.


    • KfW is working on a USD 5y Global via BofA, Citi and RBC. Swaps +40bps.


    • BPCE is preparing USD 5y and 4y NC3 (SNP) bonds at around Treasuries +165 and 230bps. Leads are Barclays, Citi, JPM (B&D), MS, Natixis, RBC and TorDom.


    • OKB plans a $1bn 3y Global at around swaps +39bps. Leads are Barclays, Citi, GS and HSBC.  Expected to price Wednesday.


    • Macquarie is preparing a USD Tier 2 sub in the region of Treasuries +350bps. Leads are BofA, Citi, GS, JPM, Macquarie and WFS.  


    • SK Hynix plans USD 3y, 5y Sustainable and 10y Green bonds at around Treasuries +280, 315 and 360bps. Leads are BNPP, BofA, Citi (B&D), Ca, HSBC, MUFG and StanChart.


    • Export-Import Bank of India is working on a USD 10y Sustainability bond at around Treasuries +220bps. Leads are Barclays (B&D), BofA, Citi, HSBC, JPM, MUFG and StanChart.


    • Kommunalbanken is preparing a USD 5y in the region of swaps +58bps. Leads are Citi, HSBC, JPM and RBC.  Expected to price Wednesday.


    • CDC is preparing a $1bn 3y at around swaps +46bps. Leads are Barclays, BNPP, JPM, MS and Nomura. Expected to price Wednesday.


    • CaixaBank plans a USD  6y NC5 SNP after meeting investors Jan 9.  Barclays, BofA, BNPP, Caixa, JPM and MS are leads.


    • Air Lease yesterday priced a $500m 5y via Citi, FITB, RBC, Santander and Lloyds.  BBB/BBB.  +190bps.


    • RBC yesterday priced a four-tranche USD issue including a $1bn 3y fixed at +95, a $300m 3y FRN at SOFR + 108bps, a $750m 5y at +125bps and a $1.7bn 10y at +150bps. Leads are Citi, JPM, KEY, RBC, Santander and SocGen.


    • National Bank of Canada yesterday priced a $750m 2y via Citi, NBC, GS, JPM and RBC.  A3/BBB+/A+. +110bps.


    • BNP Paribas yesterday priced a self-led $1.75bn 6y NC5.  Aa3/A+/AA-. +145bps.