USD Swaps: Flattening into CPI; Heavy issuance

Flattening into CPI; Heavy issuance   

The UST bull flattened as the market readied for the CPI print tomorrow. The 10y note yield is last 3.6bps lower at 3.707% while 2s10s flattened 2.9bps to -82bps and 5s30s was last -0.7bps lower at -12.8bps. Equities ended higher but a bit off the intraday highs (DJIA +1.11%, S&P+1.04% and Nasdaq +1.88%).  

Looking at the landscape ahead of CPI, although the market continues to whisper for a higher-than-expected number, one trader felt that “absent a materially higher CPI tomorrow, I think it is very unlikely we see another 50bps hike anytime soon.” The inflation swaps market saw the NSA CPI trade up from 6.21454% this morning to 6.21808% last, or slightly higher than Friday (please see link and live trades).

Swap spreads saw a steepening of the curve versus the underlying flattening of USTs amid mostly higher than average volumes. IG corporate issuance (ex-SSA) saw a hefty $19.2bn price with several large multi-tranches -including a $6bn 4-part from CVS and $5.25bn 4-part from Philip Morris along with 8 other issuers – all likely not swapped.

Going into CPI, and looking at the FX/duration dynamic specifically, analysts at BNP Paribas believe that the narrative around the USD “has shifted from ‘the USD is a sell on rallies’ to ‘the USD will be hyper data-sensitive going forward’” and recently, the bank finds that the strengthening in the USD over the past week “has also been sharper than other asset classes would suggest, and for the first time since Q4 2023 the USD looks rich versus a number of currencies in our short-term fair value model.”

BNP Paribas thinks the outperformance of the USD “reflects that USD shorts were stretched ahead of the payroll print.”  If CPI “fails to surprise to the upside and the market continues to price in disinflation, but revises growth expectations higher based on a strong labor market, we think the medium-term bearish USD view remains,” it suggests.

“This is because a soft landing removes a major upside risk for the USD: an earnings recession” and also, “the ongoing rotation into eurozone assets, reflected across both debt and equity, creates an inherent vulnerability for the USD,” BNP Paribas assesses.

Currently, SOFR swaps 2s +4.25bps (-0.375bps), 3s -8.5bps (+0.125bps), 5s -21.625bps (+0.75bps), 7s -30.375bps (+1.25bps), 10s -29.25bps (+0.625bps), 20s -57.875bps (+1bps), 30s -66.25bps (+0.375bps).

New issues

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

• PepsiCo launched a $3bn 5-part ($500m 3y, $350m 3y FRN, $650m long 5y, $1bn 10y and $500m 30y). Leads BofA, Citi and JPM. A1/A+. +35bps, SOFR +40bps, +55bps, +75bps and +87.5bps.

   

• American Express priced a $1.5bn 2-part ($1.2bn 3y fixed and $300m 3y FRN). Leads Barclays, BofA and WFS. A2/BBB+/A. +72bps and SOFR +76bps.  

   

• CVS priced a $6bn 4-part ($1.5bn 3y, $1.5bn 7y, $1.75bn 10y and $1.25bn 30y).  Leads Barclays, BofA and JPM. Baa2/BBB. +90bps, +140bps, +155bps and +185bps.

   

• Philip Morris priced a $5.25bn 4-part ($1.25bn 3y, $1bn 5y, $1.5bn 7y and $1.5bn 10y). Leads Barclays, BofA, Citi, DB, HSBC, Mizuho and SMBC. A2/A-/A. +80bps, +110bps, +145bps and +170bps.

   

• Consumers Energy priced a $700m 10y FMB fixed. Leads Barclays, BofA, Mizuho. A1/A.  +97bps.

   

• Tucson Electric Power priced a $375m 30y fixed. Leads MUFG, Scotia, TSI, USB and WFC. A3/A-. +175bps.

   

• Jacobs priced a $500m 10y SLB fixed. Leads WS, BofA and MS. Baa2/BBB-. Price talk +220bps.

   

• Union Pacific priced a $1bn 2-part ($500m 3y and $500m 30y). Leads Barclays, Citi, JPM and MS. A3/A-/A-. +55bps and +118bps.

   

• McKesson priced a $500m 3y NC1. Leads WFS and BNPP. Baa1/BBB+/BBB+. +110bps.  

   

• Kimberly-Clark priced a $350m 10y. Leads HSBC, JPM, MS, RBC. A2/A. +80bps.