USD Swaps: Double digit rally; 20y strong; Skeptics

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USTs forcefully rallied, with the belly leading. The 20y was strong. Still skeptics remain vocal over the extent of cuts priced. Spreads widened.

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  • Double digit rally; 20y strong; Skeptics

  • New issues


    Double digit rally; 20y strong; Skeptics

    Treasuries catapulted higher to end the day with yields down as much as 19bps lower, led by the 7y. The 10y note yield is back to 3.37%, or 17.7bps lower, while 2s10s 4.6bps flatter at -71bps and 5s30s 6.4bps steeper at 10.4bps. Equities closed lower (DJIA -1.81%, S&P -1.55% and Nasdaq -1.24%). Earlier the $12bn 20y reopening came 3.2bps through the 1pm bid, adding


    The Fed’s Beige Book saw selling prices increase “at a modest or moderate pace” in most Districts, though “many said that the pace of increases had slowed from that of recent reporting periods.” Many retailers noted “increased difficulty in passing through cost increases, suggesting greater price sensitivity on the part of consumers.” Employment continued to grow “at a modest to moderate pace for most Districts.” As for overall economic activity, “five Districts reported slight or modest increases in overall activity, six noted no change or slight declines, and one cited a significant decline” (NY).


    Although the market seems to have swung fully into pivot, one source thought that the levels priced in 2025 under 3% to 2.87% at the end of 2025 seemed to be “too low,” but added that the conviction in the market is low to fight the move. Another source also considered that the projected Fed cuts “won’t transpire” as the market has consistently ignore the Fed, to their eventual peril, he warned - although at the same time, today’s rally strength is likely in part due to shorts covering.


    To be sure, today St Louis Fed President Bullard still thought the rate level was “not quite” at restrictive level and argued that “policy has to stay on the tighter side in 2023” with his forecast of 5.25% to 5.5% at year end.


    As for the details on the 20y auction, the $12bn reopening came 3.2bps through the 1pm bid side, with higher indirects (76.3%) offsetting lower directs (15.6%), leaving primary dealers with just 8.1% of the total auction. With the 20y liquidity event, 20y spreads widened out to a mid-morning high of -57.5bps before coming back to -60bps prior to the auction, and then ended the session at around -58.5bps or still over 3bps wider on the day. Overall, swap spreads lifted higher in a directional move with  volumes best seen at the wings. As for issuance, SSA supply took center stage as the market did not see any more follow through by FIGs in the expected post-earning supply, after Morgan Stanley and BofA tapped the markets yesterday.


    Currently, SOFR swaps 2s +0.5bps (+1.25bps), 3s -12bps (+1.5bps), 5s -22bps (+2bps), 7s -30.25bps (+2bps), 10s -30.75bps (+1.25bps), 20s -58.5bps (+3.25bps), 30s -65.5bps (+1.375bps).




    New issues


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


    • 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.        


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


    • First Abu Dhabi Bank (Aa3/AA-) priced a $600m 5.25y. Leads Citi, ENBD, FAB, HSBC and StanChart (B&D). +105bps.


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


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


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