USD Swaps: Yields cascade lower; Spreads pop out; BoJ view; 20y preview

Chart up line Oct 2022
UST yields have cascaded even lower as a raft of softer data has added to the overnight BOJ rally. BNPP’s BOJ view. JPM previews 20y auction.

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  • Yields cascade lower; Spreads pop out; BOJ view; 20y preview

  • New Issues


    Click here for SDR USD IRS trades.


    Yields cascade lower; Spreads pop out; BoJ view; 20y preview

    A raft of softer-than-expected data this morning (i.e. retail sales, PPI, industrial production) has sparked concerns as to whether or not the Fed can actually orchestrate the so-called ‘soft landing’.  And this has served to morph into an even more aggressive bull-steepening move after the overnight bull-flattening in Treasuries as the BOJ opted to leave its yield curve control policy intact.


    Indeed, the benchmark 10y note yield is last a solid 12bps lower at 3.423% while the 5s30s spread has widened out 9.75bps to 13.5bps – it’s steepest level since August 2022.  Further in, red and green Eurodollars are outperforming on the strip with 9 to 14 tick gains.  Meanwhile, swaps spreads have leaked even wider amid today’s precipitous fall in rates despite some potential swapped issuance in the wings today (e.g. CAF, CoE, CADES, JBIC).  Overall, swap volumes are running at an above-average clip, best seen in the wings (i.e. 1y & 30y). 


    Elsewhere, in the wake of the BoJ’s decision today, strategists at BNP Paribas continue to expect “the Bank of Japan to widen the target range for the 10y rate to 0%±1% on 10 March.”  Although the BoJ today tweaked its fund provision scheme to better control the yield curve, the bank thinks that “long-term JGBs might continue to face selling pressure amid persistent expectations about policy normalization.”  But with the initial reaction today dominated by short covering, BNP Paribas believes that “the BoJ might be able to buy time until the next meeting with its change in the fund provision scheme.”


    Ahead, Treasury will auction off $12bn re-opened 20y bonds (Nov42s), unchanged from the last reopening in December.  Previewing the today’s auction, strategists at JP Morgan believe that rich valuations may warrant some concession:


      ”…The December auction stopped 1.2bp through pre-auction levels, as the share of end-user demand rose to 91.3%, driven by a 14.5%-pt jump in the share of foreign demand to 22.7%. Twenty-year yields have declined roughly 13bp since the December auction.


      “…Along the curve, the 10s/20s/30s butterfly is roughly unchanged over this period, but remains near the richest levels of the past year. Though much of the richening we’ve observed since last summer has been justified by the improved liquidity conditions as Treasury has right-sized 20-year auction sizes relative to surrounding tenors, the 20-year sector appears somewhat rich on the fly after adjusting for the level of 20-year yields, the shape of the 10s/30s curve, and HG spreads.


      “With intermediate Treasuries looking somewhat rich to fair value, and the 20-year sector looking rich on the curve, we think tomorrow’s auction will require some further concession in order to be digested smoothly.”


    Currently, SOFR swaps – 2s 0.125bps (+1bps), 3s -11.75bps (+1.625bps), 5s -22.625bps (+1.5bps), 7s -30.625bps (+1.625bps), 10s -31bps (+1bps), 20s -59bps (+2.75bps), 30s -65bps (+1.75bps).



     New issues

    • CAF is working on a 3y benchmark via BofA, Citi, DB and GS.  Aa3/AA-/AA-.  Price talk: MS +130-135bps area.


    • CoE Development Bank plans a $1bn 5y Global at around swaps +41bps. Leads are Barclays, BNPP, GS and RBC. Expected to price Jan 19.


    • Serbia (Baa2/BB+) plans USD long 5y and 10y bonds after meeting investors Jan 18. Leads are BNPP, BofA, Citi, DB and JPM.         


    • First Abu Dhabi Bank (Aa3/AA-) is preparing a USD 5.25y at around Treasuries +130bps via Citi, ENBD, FAB, HSBC and StanChart (B&D).


    • Israel Discount Bank (A2/BBB+) plans a USD 5y. Leads are Barclays, Citi and Jefferies. 


    • CADES launched a $4bn 3y Social bond at swaps +39bps. Leads are Barclays, GS, HSBC and SocGen.


    • OPEC Fund launched a $1bn 3y sustainability deal via CA-CIB, Citi, GS, Nomura and TD.  AA/AA+.  Launched at MS + 90bps.


    • JBIC (A1/A+) launched a $2.5bn 3y Global. Leads are Daiwa, Citi (B&D), GS and JPM. Launched at swaps +62bps.