Refunding, ISM and FOMC await
UST yields are just 1-2bps lower and S&P futures are creeping 0.2% into the red in the run up to today’s FOMC meeting, with white SOFR futures unchanged and the reds up 1-3bps versus gains of 3-4bps for the greens. Important data today landing before the Fed decision will include ISM Manufacturing (consensus is for a small fall to 48.0 from 48.4, with the prices paid index seen rising to 40.4 from 39.4) and JOLTS job openings (consensus is 10300K). With no new IG deals on the screens, swap spreads are wider with 5s at -21.50bps (+0.125), 10s at -30.00bps (+0.50) and 30s at -66.50bps (+0.75). SOFR volumes are below-average but strongest in the 30y bucket.
Next up, Treasury will release details of the Q1 refunding. Barclays previews the announcement and looks for the Treasury to keep auction sizes of notes/bonds unchanged, which it estimates should allow the share of T-bills to rise to within 15-20%. It also estimates fair values for the 3y, 10y, and 30y rolls at announcement of -2.5bp, -2.6bp, and +0.1bp. It continues:
“We expect the Treasury to raise coupon sizes starting early next year given the increase in the amount of debt scheduled to mature. The higher-than-expected financing estimates suggest that the Treasury may start raising them a bit earlier.”
“We will also be looking for any discussions on issuance strategy, such as Treasury buybacks or adjustments to the coupon schedule to improve Treasury market liquidity. However, Treasury liquidity conditions have improved recently with the decline in rate volatility, and we think there is less urgency from the Treasury to make material changes to its issuance strategy.”
Callables and Formosas
- Barclays Bank sold a $100m floating rate Formosa due Feb 2028 paying SOFR +145bps. Leads on the GMTN are CTBC, E.Sun, Mega International Commercial Bank and Taishin. Announced Feb 1.
- IBRD sold a $50m 15y NC5 fixed rate callable (non-Formosa) 4.35% due Feb 2038. Single call in Feb 2028. Lead is CIBC and announced Jan 31.
- ING Bank sold a S10m 15y NC3 fixed rate callable (non-Formosa) 5.45% due Feb 2038. Annual calls from Feb 2026. Lead unconfirmed and announced Feb 1.
- Pemex (B1/BBB) yesterday priced a $2bn 10y at 10.375% via Barclays, JPM and Mizuho.