USD Swaps: Weak 30y throws a curveball; Softer landing, CPI concerns

Baseball player throws ball 17 Jan 2023
The 30y tailed over 3bps, perplexing traders after the strong 10y. USTs fell and concerns of a softer landing and CPI are percolating.

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  • Weak 30y throws a curveball; Softer landing, CPI concerns

  • New issues


    Weak 30y throws a curveball; Softer landing, CPI concerns  

    Treasuries peeled back lower this afternoon, after a weak 30y auction threw a curveball into the bullish narrative coming out of yesterday's strong 10y. The 10y note yield is last 3.667% or 6.9bps higher in yield on the day, after hitting a low of 3.569% this morning. Meanwhile, 2s10s USTs is last 1bps flatter at -82.5bps while 5s30s USTs is 1.3bps lower at -13.2bps. Equities ended down for the session (DJIA -0.73%, S&P -0.64% and Nasdaq -1.02%).


    The 30y produced unexpectedly sour twist for the final leg of this week's refunding. To be sure, the auction tailed 3.1bps versus the 1pm bid side, drawing a rate of 3.686%, with decidedly lower indirects (65.2%) offset slightly by higher directs (18.9%), leaving primary dealers with a higher allocation of 15.8% - indeed, the highest since last April. The bid-to-cover came at a weak 2.25x.


    “The auctions have been perplexing this week,” remarked one trader, as yesterday’s 10y was very strong but today’s 30y saw weak demand. And the price action after the auctions seem to underscore the lack of liquidity in the market, he added, as the result of the auction appeared to dictate the price action long afterwards. 


    Meanwhile, the narrative of a softer landing has pushed back rate cuts further out the curve and going into next week’s CPI, and should the CPI number be higher than forecast, “then what happens?” wondered one source, as concern is rising in the markets over higher than forecast CPI for the next couple of months.


    The swap spread curve stayed a touch steeper amid mixed  volumes while spreads came off the intraday wides in a directional move to the underlying selloff. IG new issuance (ex-SSA) priced an additional $3bn, and the week's volume is last at $33.4bn - or roughly matching the mid-forecast expectations of $30-$35bn.   


    Currently, SOFR swaps 2s +2.5bps (-0.5bps), 3s -8.25bps (-0.5bps), 5s -22.5bps (-1.125bps), 7s -31.5bps (-0.875bps), 10s -29.5bps (-1bps)*, 20s -59.25bps (unch), 30s -65.5bps (+0.125bps).


    *adjusted for the 1.8bp give



    New issues


    • Westpac New Zealand launched a $750m 5y. Leads BofA, Citi, HSBC, JPM and Westpac.  A1/AA-/A+. +105bps.


    • BP Capital Markets priced a $2.25bn 10y. Leads  BNPP, Citi, DB, JPM, SMBC and WFS. A2/A-/A. +112bps.


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