USD Swaps: USTs pulling off their highs into supply; 30y to follow 10y?

Chart line down Oct 2022
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Amid a modest risk-on move, USTs are pulling off their earlier highs heading into the 30y auction which analysts suggest may strike gold like the 10y.

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  •  USTs pulling off their highs into supply; 30y to follow 10y?

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    USTs pulling off their highs into supply; 30y to follow 10y?

    A modest risk-on move today (Dow +0.40%, S&P +0.54%, Nasdaq +0.34%) currently sees the early bid in Treasuries slowly but surely dissipating.  Indeed, the benchmark 10y note yield is last 0.7bps higher at 3.605% after a brief dip through 3.57% earlier.  On the curve, the 5s30s spread is 4.5bps narrower at -16.2bps as the long-end still remains a smidgen in the green for the time being.

     

    Further in, red and green SOFR futures are 0.5 to 3 ticks weaker while longer tenors out to the Dec27 contract are up to 4 ticks firmer. Meanwhile, swap spreads are mostly wider amid below-average activity with the spread curve steepening amid the flattening in underlying rates. In the backdrop, just a handful of IG issuers are testing the waters today as issuance has lightened up after the strong volumes earlier in the week. 

     

    Ahead, Treasury will finish the final leg of this week’s refunding with today’s $21bn 30y bond auction (unchanged from the last new-issue auction in November) after stellar $35bn 10y note auction (see link).  Heading into today’s supply, strategists at JP Morgan believes that today’s auction may receive a similarly war reception by investors/end-users.  The bank highlights the following:

     

      ”…The January re-opening auction cleared 2.4 through pre-auction levels, as end users were awarded 91.0%, a record high and 6.3%-pts above the previous auction…Investor class auction allotment data show investment manager demand rose 12.5%-pts to 72.8%.

       

      “... 30-year yields have risen 13bp since the January auction, with much of this move occurring within the last week, and offer an attractive opportunity to lock in higher yields late in the cycle.

       

      “…Overall, we expect the demand for long-end Treasury should remain firm, as DB funds continue to increase their fixed income asset allocation amid funded ratios at their highest levels in two decades.

       

      “... All together, demand looks robust, especially following today’s 10-year auction process and January stripping data, and we think (today’s) auction could be digested well.”

     

    Currently, SOFR swaps – 2s 2.5bps (-0.5bps), 3s -9bps (-0.25bps), 5s -21.125bps (+0.25bps), 7s -30.125bps (+0.5bps), 10s -28.25bps (+0.25bps)*, 20s -57.75bps (+1.25bps), 30s -63.75bps (+1.375bps).

     

    * adjusted for the 1.875bps give.

     

     

    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.  A1/AA-/A+.  Price talk: +125bpps area.

       
       
       
       
       
       
       

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