USD Swaps: USTs melt in bear flattening; Bulls rinsed out

USTs bear flattened to the tune of a 20bps selloff in the front end as the first big unwind of the year ensued in the aftermath of NFP.

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  • USTs melt in bear flattening; Bulls rinsed out 

  • Callables and Formosas

  • New issues


    USTs melt in bear flattening; Bulls rinsed out 

    Treasuries end the session close at the lows of the day, with yields 5.5 to 20bps higher on the day, led by the 3y. the 10y note yield is last 3.642% or 12.3bps higher on the day while 5s30s sank -12.2bps lower at -16.6bps and 2s10s flattened -7.6bps to -84.7bps. Equities closed lower but off the lows of the day (DJIA -0.11%, S&P -0.72% and Nasdaq -1%).


    The massive bear flattening move has engulfed the markets as dovish plays have been unwound and carry trades have been stopped out. The market has gotten used to “trading in a smaller range, with Powell more or less in line and the rally caps were on,” remarked one trader. However, that was all upended with the 517k NFP number and thus the market is seeing its first real rinse of positioning this year.


    Fed's Bostic (non-voter) poured a bit more fuel to the selloff fire today, saying this afternoon that if the stronger economy persists "it'll probably mean we have to do a little more work" and that would "translate into us raising interest rates more than I projected" - with his base case of 5.1% terminal.  


    Swap spreads narrowed versus the underlying selloff in USTs amid higher volumes throughout the curve. IG new issuance (ex-SSA) managed to weaver its way through the risk off vibes and higher yields and priced nearly $13bn today across seven issuers.


    In a post-mortem of  data and events of last week, analysts at JP Morgan contend that “if the Fed's rate hikes represent an irresistible force, labor markets appear to be analogous to the proverbial immovable object” as Friday's employment report came in “considerably stronger than expectations” and thus, “the outlook for inflation remains cloudy,” JP Morgan assesses.


    The events of last week are, “in some sense, typical of the later stages of a hiking cycle,” the bank judges. “On the one hand, the terminal rate remains unknown, and could be biased higher given continuing strength in the labor markets” while on the other hand, even if the Fed were to continue hiking beyond levels currently being anticipated, “it is likely to do so in a more gradual manner.”


    With evidence of a maturing cycle, JP Morgan sees this as “broadly supportive” of carry trades. For example, the bank favors 1y2y / 2y3y forward swap curve flatteners, hedged with a 15% risk weighted long in the 1y1y sector. The 1y2y / 2y3y curve has been “well (and inversely) correlated” to 1y1y swap yields, “with a beta of about -0.15.” However, the 1y2y / 2y3y flattener “has 23bp of carry over 3 months,” while an outright short in the 1y1y “has about 40bp of positive carry.”


    Currently, SOFR swaps 2s +1bps (-1.375bps), 3s -11.125bps (-0.625bps), 5s -21.25bps (-1.25bps), 7s -30.25bps (-2bps), 10s -30bps (-1.5bps), 20s -58bps (-0.75bps), 30s -65.5bps (-1.125bps).



    Callables and Formosas  


    • Standard Chartered sold a $10m 10y NC1 zero coupon callable (non-Formosa). The EMTN matures Feb 2033 and is callable annually starting Feb 2024. Self-led. Estimated IRR 6.12%. Announced Feb 6.


    • IBRD sold a $100m 10y NC2 fixed callable (non-Formosa). The EMTN matures Feb 2033 and is callable annually starting Feb 2025 and pays 5%. Lead WFS. Announced Feb 6.


    New issues

    For a complete review of issuance over the past week please see USD New Issues.


    • The EIB plans a USD benchmark 10y Climate Awareness Bond issue at around SOFR +50bps via BNPP, CIBC and Citi. Expected to price tomorrow.


    • Caisse de Depot et Placement du Quebec (CDP) plans a 3y USD at around SOFR +60bps via Barclays, BMO, BofA and RBC. Aaa/AAA/AAA. Expected to price tomorrow.


    • Intel is meeting investors on Feb 6. Leads are BofA, Citi, JPM and MS.


    • Swedish Export Credit plans a USD 3y Global via Citi, Daiwa, HSBC and JPM. Aa1/AA+. Expected to price tomorrow.


    • The World Bank plans a USD 7y Sustainable Development Bond via BofA, Barclays, HSBC and JPM. Aaa/AAA. Price talk mid swaps +49bps. Expected to price tomorrow.


    • Export Development Bank of Canada is preparing a USD 5y Global at around SOFR +41bps. Leads are BMO, CIBC, GS and MS. Aaa/AAA. Expected to price tomorrow.


    • Becton Dickenson launched a $800m 5y fixed. Leads Barclays, Citi and GS. Baa2/BBB/BBB. +88bps.


    • NextEra Energy priced a $4bn 4-part ($1.25bn 5y, $600m 7y, $1bn 10y and $1.15bn 30y). Leads Barclays, CS, MS, MUFG, SMBC and WFC. Baa1/BBB+/A-. +110bps, +125bps, +140bps and +155bps.


    • Deutsche Bank NY priced a $ 11y NC10. Self-led. Baa3/BB+/BBB-. +345bps.    


    • T-Mobile USA priced a $3bn 3-part ($1bn 5y, $1.25bn long 10y and $750m tap 5.65% Jan ‘53). Leads DB, MS, RBC and WFC. Baa3/BBB-/BBB-. +118bps, +143bps and +165bps.


    • Northrup Grumman priced a $2bn 2-part ($1bn 10y and $1bn 30y). Leads WFS, JPM, Mizuho. Baa1/BBB+/BBB+. +108bps and+128bps. 


    • Micron priced a $1.25bn 2-part ($500m tap of 6.75% Nov ‘29 and $750m 10y). Leads MS, WFC, BofA. Baa3/BBB-/BBB. +210bps and +225bps.


    • Spire Missouri priced a $400m 10y FMB. Leads WFS, BMO, TD and USB. A1/A.+120bps.