USD Swaps: USTs bandied about; 5y stellar; Dealer refunding survey

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USTs ended with small gains after a choppy session. The 5y auction sees record low indirects. BNP Paribas examines February refunding queries.

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  • USTs bandied about; 5y stellar; Dealer refunding survey  

  • New issues


    USTs bandied about; 5y stellar; Dealer refunding survey   

    Treasuries settled back to unchanged after this morning’s rally and selloff both failed to break out. The 10y note yield is last 3.451% or 0.4bps lower in yield while 5s30s is off the steeps of the day, settling last 1.5bps higher at 4.7bps. Equities are closing well off the intraday lows (DJIA +0.03%, S&P -0.21% and Nasdaq -0.18%).


    As for UST supply, the $43bn 5y auction was stellar, coming 2.5bps through the 1pm bid side. It drew record indirect bidders (75.7%) and while directs were lower (15.4%), the primary dealer allocation dropped to a record low 8.82%. The bid-to-cover came at a strong 2.64x.


    Swap spreads edged wider with the long end again leading the gains amid below average volumes. On the IG new issuance side, only a $2.25bn 2-part from Capital One priced and weekly volume is now $20.35bn, on the lower end of the $20-$25bn expected for the week. 


    Elsewhere, in the recent February refunding dealer survey, the Treasury asked dealers about additional public transparency rules in Treasury debt markets, as well as a proposed reopening schedule for auctions at the front end and in the belly.


    Analysts at BNP Paribas judge that “although additional public transparency in Treasury markets may boost market confidence, it might cause more harm than good in the long run.” The bank’s main concern is that “this could negatively impact intermediation and risk transfer, primarily in large transactions” and that “it might hinder the ability to recycle and warehouse risk, which could widen bid/offer spreads.”


    Meanwhile, the Treasury asked whether introducing a quarterly new-issue schedule (similar to 10-, 20- and 30-year nominal coupon benchmarks) for 2-, 3-, 5- and 7-year nominal coupon benchmarks would improve liquidity and BNP Paribas believes “this would help liquidity and benchmark issues would be less likely to trade special in repo” as “creating a larger, liquid issue for each benchmark with fewer CUSIPs in the market could narrow bid-ask spreads.”


    However, if the Treasury were to pursue this strategy, BNP Paribas would advocate “staggering issuance months.” If all securities had February, May, August and November maturities, BNP Paribas notes that this “would ultimately lead to an outcome with no coupon bonds maturing in the re-opening months” which would be “a less-than-optimal outcome for funding markets, in our view.”


    Currently, SOFR swaps 2s +3.375bps (-0.25bps)*, 3s -13bps (+0.5bps), 5s -23.125bps (+0.625bps), 7s -30.875bps (+0.875bps), 10s -31bps (+0.75bps), 20s -59.5bps (+1.25bps), 30s -67.125bps (+1.125bps).


    *adjusted for the 5.75bps give.


    New issues


    • Capital One priced a $2.25bn 2-part ($1bn 6y NC5 and $1.25bn 11y NC10). Leads BofA, Citi, MS and RBC.  Baa1/BBB/A-. +190bps and +235bps.


    • Ziraat Bank priced a $500m long 3y at 9.75%. Leads are ENBD, GS, MASHRQ, SMBC Nikko, SocGen and StanChart (B&D). B3/B-.