USD Swaps: Readying for TIPS 30y after higher PPI

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The long end sees more supply this afternoon, as $9bn new 30y TIPS are on the auction block. UST have stayed steeper, lower. Spreads mixed.

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  • Readying for TIPS 30y after higher PPI

  • New issues


    Readying for TIPS 30y after higher PPI  

    USTs are last 1.5 to 5.5bps higher in yield after PPI (higher), Housing starts and Philly Fed (weaker). The 10y note yield is last 4.2bps higher in yield at 3.843% while 2s10s is last 2.7bps steeper at -80.5bps and 5s30s 2.3bps steeper at -17.3bps. Equities are lower (DJIA -0.71%, S&P -0.69% and Nasdaq -0.60%).


    Looking at the PPI data, excluding food, energy, and trade margins, final demand PPI “was up 0.6% m/m (4.5% y/y), the largest monthly move since March 2022” analysts at Barclays highlight. Moreover:


      “Final demand goods rose 1.2% m/m, led by energy costs, the largest monthly increase since June 2022  Most of the rise in January prices is attributable to a 5.0% increase in energy costs, fueled by gasoline prices (+6.2% m/m). That said, final demand goods PPI excluding food and energy climbed 0.6% m/m, following a tepid 0.1% increase in December, amid broad-based increases across commodities. Final demand food PPI, meanwhile, fell 1.0% m/m.


    Meanwhile the 20y point is lagging in both yield and in spread after yesterday’s decent auction, pointing a lack of follow through buying interest after the liquidity event, sources judge. Swap spreads are mostly narrower outside the 3y and 10y maturities that are outperforming a touch amid volumes mixed thus far.


    Ahead, the Treasury auctions off $9bn new 30y TIPS at 1pm, and TIPS BEs are 4-5bps higher this morning, as RYs are outperforming and BEs in general have enjoyed further gains post-CPI (see USDi for more). As for the 30y TIPS supply, looking back on the previous 30y TIPS auction back in August, analysts at JP Morgan highlight:


      “The August 30-year auction cleared 5.7bp through pre-auction levels, the most on record, as end-user demand rose to 88.9%, the second highest share on record. Auction allotment data show that investment manager demand increased 7.6%-pts to 69.1% and foreign demand ticked up to 18.5%.


      “Since the last auction, 30-year real yields have increased 68bp, and are now near the cheapest levels over the past decade. Breakevens, while roughly unchanged since the last auction, are 8bp wider from earlier this month and look somewhat cheap relative to commodity prices and risk assets. With real yields levels looking attractive and breakeven valuations looking somewhat cheap, we think tomorrow’s auction process should be digested smoothly.”


    Currently, SOFR swaps 2s 7bps (-0.875bps), 3s -6.75bps (unch), 5s -20.375bps (-0.375bps), 7s -30.25bps (-0.375bps), 10s -28.75bps (+0.125bps), 20s -59.5bps (-0.75bps)*, 30s -68.5bps (-0.25bps).


    *adjusted for the 1bp give



    New issues


    • Exelon is working on a $TBA 3-part (5y, 10y and 30y). Leads Barclays, Citi, GS, JPM and MD. Baa2/BBB/BBB. Price talk +135/140bps, +165/170bps, and+185/190bps.


    • Leidos plans a $TBA 10y. Leads BofA. Citi, MUFG. Baa2/BBB-. Price talk +235bps area.


    • AT&T is working on a $TBA 3y NC1 fixed. Leads Mizuho, LOOP, PNC, SMBC and TD. Baa2/BBB/BBB+. Price talk +135bps area.


    • Korean Housing Finance Corp plans a $TBA 2-part (5y and 10y). Leads Citi, Credit Ag, HSBC, JPM, SocGen and Standard Chartered. Aa2/AA/AA-. Price talk +110bps and +130bps area.


    • Swedbank plans a $500m perp NC5 Tier 1 sub (Ba1/BBB-) at 7.625%. Leads are Barclays, BNPP, Citi, Swedbank and UBS.


    • Adani Group plans to meet investors on Feb 16-21. Leads are BNPP, DBS, DB, Emirates NBD, UING, MUFG, Mizuho, SMBC Nikko and StanChart.


    • NWB launched a $1.5bn 2y benchmark. Leads BMO, Daiwa, RBC and Scotia.  Aaa/AAA.  MS + 19bps.