USD Swaps: Flatter before 30y; Short cut

Price charts 25 Nov 2021
USTs are flatter before the 30y auction even as risk assets gains. Banks recommend cutting SOFR shorts. A new Formosa is announced.

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  • Flatter before 30y; Risk assets gain; Short cut

  • Callables and Formosas: Greensaif 

  • New issues


     Flatter before 30y; Risk assets gain; Short cut

    Treasuries are bull-flattening in the run up to today’s $21bn 30y auction with the bond at 3.65% (-3bps) after hitting 3.70% in Asian trading. Nasdaq futures are +1.3% and credit spreads are in but IG issuance has slowed and swap spreads are mostly a tad wider with 5s at -21.25bps (unch), 10s at -28.50bps and 30s at -64.75bps (+0.50).  Swap flows are slightly below-average across the curve except for the 3y bucket.


    Shorter in, SOFR futures have pared gains but remain 1-2bps stronger in the reds and greens after initial claims crept 13K higher to 196K. Ahead, Barclays recommends closing shorts in Sep23 SOFR futures given Fed rhetoric and the outlook for inflation. It explains:


      “Chair Powell has so far avoided several avenues for a hawkish interpretation of the Fed’s reaction function. This suggests to us that the Fed may not lean much against data that increase the chances of a soft landing, unless accompanied by evidence in terms of added inflationary pressure (higher wages/prices)…For the market to materially reassess the terminal rate further higher in the near term, inflation data also need to surprise to the upside.”


    CPI data prints next week with core seen at +0.3%  but, for the medium term, the Fed has a 3.5% core PCE inflation forecast for 2023, which Barclays points out is “already 0.5pp above consensus and thus gives the Fed some room to accommodate tighter labor markets.” The bank continues:


      “While the market could reprice the path of policy rate higher as the tail risk of the Fed not being able to follow through with ‘ongoing’ rate hikes further diminishes, we also see room for a repricing lower for the latter half of the year, should inflation follow the market-implied trajectory, with CPI inflation priced to fall to around 2.5% or if a recession materializes.”


    Callables and Formosas: Greensaif

    • RBC sold a $20m 15y NC4 fixed callable (non-Formosa). The EMTN matures Feb 2038, is callable annually from Feb 2027 and pays a 5.405% coupon. Puttbale in May 2023. Self-led and announced Feb 8.


    • Greensaif Pipelines plans a USD 19y amortizing Formosa with a WAL of 18y at around around Treasuries +305bps via BNPP (B&D), HSBC, JPM and Citi, plus FADB, MUFG and SMBC Nikko. It also plans a 15y at around +275bps and a 10y Sukuk at +240bps.   


    • Standard Chartered Bank sold an $100m 5y NC3 fixed callable (non-Formosa). The EMTN matures Feb 2028, is callable annually from Feb 2026 and pays a 5.03% coupon. Self-led and announced Feb 9.


    • Standard Chartered Bank sold an AUD56m 10y NC5 fixed callable Formosa. The AUD Sustainability EMTN matures Feb 2033, is callable annually from Feb 2028 and pays a 5.7% coupon. Lead is StanChart Taiwan and announced Feb 8.


    New issues

    • BP Capital Markets is preparing a USD 10y at around Treasuries +135bps. Leads are BNPP, Citi, DB, JPM, SMBC and WFS.


    • Agence Francaise de Developpement (AFD) (AA/AA) plans a $1.75bn 3y via BofA, CA, GS, JPM and SocGen. Swaps +44bps.


    • Westpac New Zealand is preparing a USD 5y through BofA, Citi, HSBC, JPM and Westpac.


    • Braskem yesterday priced a $1bn 10y. Leads BNPP, Citi, ITUA, MS, Santan, SMBC, CA-CIB, MIOZ, StanChart, ING and Natixis.  BBB-/BBB-.   7.25%.