USD Swaps: Heavy duration smacks long end; $24bn Amgen

Computer lines code 30 Jan 2023
Amgen's $24bn 8-part flooded the market - the largest M&A deal in nearly a year. USTs bear steepened. The 20y auction saw a record low dealer take.

Start a free trial to read this article

Join today to access all  Total Derivatives content and breaking news. Already a subscriber? Please Log In to continue reading.

Or contact our Sales Team to discuss subscription options.

Get in Touch
Blurred image of Total Derivatives article content


  • Heavy duration smacks long end; $24bn Amgen

  • New issues


    Heavy duration smacks long end; $24bn Amgen  

    The bear steepening move in USTs that gained throughout the morning stalled this afternoon as the impacts of duration heavy $24bn 8-part by Amgen and the $15bn nominal UST 20y auction were absorbed. The 10y note yield is last 3.799% or 4.6bps higher in yield while 2s10s is last 5bps steeper at -82.7bps and 5s30s 2.7bps steeper at -19.8bps. Equities closed modestly higher, led by techs (DJIA +0.11%, S&P +0.20% and Nasdaq +0.92%).


    As for the details of the 20y auction, the auction drew a rate of 3.977% or 0.3bps through the 1pm bid side. Indirects dropped modestly (75.3%) while directs gained (18%) leaving primary dealers with a record low allocation of 6.7%. The bid-to-cover came a touch softer at 2.54x.


    Swap spreads came off the intraday wides that saw the front end spread over 2bps higher on the day with 2y spread up at 10.5bps and the 3y to -4.5bps in a volatile morning trade but are now back down lower to more modest gains of under well under 1bp. The long end has lagged and underperformed versus the underlying steepening of the curve amid overall higher than average volumes


    On the issuance side, the mammoth $24bn 8-part Amgen M&A driven multi-tranche is the largest deal of the year, and the largest since last year’s $30bn AT&T Discovery deal in March 2022.  IG issuance (ex-SSA) for the week now tops $48bn – busting through the $25bn that had been anticipated.  Sources suggest that accounts likely sold USTs to make room for the long-dated duration Amgen deal, likely contributing to the steepening of the UST curve. Demand for the deal was strong, with a reported book size topping out at around 3.75x, sources say. 


    As for this morning’s surprisingly strong retail sales data, analysts at Barclays find that the retail sales number (3.0% m/m in January) “exceeded even our lofty expectations (Barclays 2.4% m/m) and those of the consensus (2.0% m/m).” The “big surprise” in the release was the strength of sales “more broadly” and when stripping away autos, “sales posted a very strong 2.3% m/m increase, led by an immense 7.2% m/m jump in the ‘eating and drinking’ establishments category and by a 1.7% m/m (Barclays 1.0% m/m; consensus 1.0% m/m) increase in retail sales control,” Barclays finds.


    Barclays argues that “for the Fed, today's data reinforce the message that it has more work to do to slow the labor market and household demand” which in turn, “amplifies risks that the target range for the funds rate will surpass our current assumption of a 5.25-5.50% peak after the June meeting.”


    Moreover, Barclays sees the data as “reinforcing our conviction that the signs of deterioration in consumer spending at the tail end of last year were a head fake” that that January's estimate “is a good advance signal that the service sector is likely to post another solid gain in the current quarter, continuing the steady recovery following the lockdowns in Spring 2020.”


    Currently, SOFR swaps 2s 8.875bps (+0.75bps), 3s -6.125bps (+0.25bps), 5s -19.875bps (+0.5bps), 7s -29.5bps (+0.25bps), 10s -28.875bps (unch), 20s -60.375bps (-1.875bps), 30s -68.5bps (-1bps).



    New issues


    • NWB is working on a 2y benchmark. Leads BMO, Daiwa, RBC and Scotia.  Aaa/AAA.  Price talk: MS + 22bps area. Expected to price tomorrow.


    • Amgen Inc. (Baa1/BBB+) launched a $24bn 8-part ($2bn 2y, $1.5bn 3y NC1, $3.75bn 5y, $2.75bn 7y, $4.25bn 10y, $2.75bn 20y, $4.25bn 30y and $2.75bn 40y) to fund the acquisition of Horizon. Leads BofA, Citi, GS and Mizuho. +65bps, +115bps, +115bps, +135bps, +150bps, +165bps, +185bps, +200bps.


    • MUFG launched a $5bn TLAC 5-part ($1.65bn 3y NC2 fixed, $600m 3y NC2 floating, $1bn 6y NC5 fixed to fixed, $500m 8y NC7 fixed to fixed and $1.25bn 11y NC10 fixed to fixed). Leads MS and MUFG. A1/A-/A-. +108bps, SOFR +94bps, +138bps, +153bps, +163bps.


    • The Government of Sharjah (Ba1/BBB-) priced a $1bn long 9y Sustainability bond.  Leads ADCB, Citi, GIB, HSBC (B&D), IMI, INVBK and SMBC Nikko. +280bps.