USD Swaps: Belly weak; Spread curve steeper

Bond chart 30 Jan 2023
The belly of the UST curve is weaker and the spread curve is steeper ahead of ISM as markets await key data. Issuers include EBRD and L-Bank.

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  • Belly weak; Spread curve steeper

  • New issues: L-Bank, EBRD


    Belly weak; Spread curve steeper

    USTs are weaker led by the belly against a backdrop of renewed pressure on euro fixed income with the Bund almost a point lower and EURIBORs down by up to 9bps in the reds following an unexpected rise in German HICP to 9.3%, 30bps above the Bloomberg consensus. The 10y Treasury is 3.96% (+4bps) and SOFR futures are as much as 6bps weaker in the greens, with the strip now peaking at an implied 5.425% for Sep23.    


    In swaps, the spread curve is steeper with 5s at -18.50bps (-0.125), 10s at -26.75bps (+0.125) and 30s at -66.75bps (+1.25). Swap volumes have started March below-par across most of the SOFR curve. 


    Next up, ISM manufacturing and vehicle sales data will fill in some gaps on the Fed’s – and the market’s – view of the economy’s momentum. Analysts at BNP Paribas expect the reports to temper some of the “sizzle” seen in a range of other economic data for January, with ISM seen remaining in “contraction territory” at 48.0, while vehicle sales are projected to retrace about half January's surge:


      “Vehicle sales have not been a good barometer of consumer demand, or the Fed's efforts to cool it, over the last year. Predetermined seasonal-adjustment factors are interacting with limited supply to create volatile swings in SAAR readings, which we estimate will create strength in Q1 on average, at the expense of Q2. In February, we estimate a roughly 6.5% increase in sales unadjusted for seasonal variation will still translate to a seasonally adjusted drop of about 8.5% (14.4m SAAR, from 15.7m prior). That would, however, be an initial sign that retail sales may fall in February, after surging 3% the prior month.”


    As for BNPP’s broader assessment of the economy, the bank warns that with consumers’ pockets still “full” of pandemic excess savings, “a second demand driven bout of inflation is in the cards should the Fed not act fast enough.” It continues:


      “With upper-bound terminal FF currently priced approximately 10bp above 5.50%, OIS markets could continue to push terminal fed funds closer to another handle (6%?) if the reacceleration in data continues. This will keep 50bp on the table (although very unlikely) and support US rates in the near-term, particularly at the front-end, which is why we continue to favor our tactical long vol position using a 1y2y ATMF+25bp payer.


    New issues

    • EBRD is preparing a USD 5y Global at around swaps +35bps. Leads are Daiwa, GS, JPM and TorDom.  


    • L-Bank plans a USD 3y at around swaps +28bps via BMO, DB, JPM and RBC.


    • Sumitomo Trust plans USD 3y fixed, 3y Floating and 4y Green bonds at  around Treasuries +140, SOFR equivalent and +160bps, respectively. Leads are BNPP (5y), BofA (5y), CA (5y), Citi (3y), Daiwa, GS and JPM.


    • Simon Property is preparing USD 10y and 30y bonds in the region of Treasuries +185 and 215bps. Leads are Citi, JPM, Mizuho and Scotia. 


    • Stanley Black & Decker plans USD 3y Nc1 and 5y bonds at around Treasuries +155bps via BofA, Citi, JPM and WFS. 


    • Edison International is preparing a USD 30y NC5 sub at around 8.5%. Leads are BofA, CS, RBC and TSI. 


    • Morocco (Ba1/BB+) is preparing USD 5y and 10.5y bonds in the region of Treasuries +210 and 275bps. Leads are BNPP, Citi, DB and JPM (B&D).


    • Teva (Ba2) plans $600m 6.5y and $500m 8.5y Sustainability bonds at around 7.875% and 8.125%. Through Citi, GS, Mizuho, MUFJ and PNC.


    • SMFG yesterday priced a $1.3bn self-led 4-part ($300m 3y tap of its 5.464% Jan 2026, $400m 5y tap of its 5.52% Jan 2028, $350m 7y tap of its 5.71% Jan 2030 and $250m 10y tap  of its 5.766% Jan 2033).  A1/A-.  +105bps. +140bps, +155bps and +170bps.


    • Astrazeneca Finance yesterday priced a $2.25bn 3-part ($1.1bn 5y, $650m 7y and $500m 10y). Leads BofA, HSBC, Mizuho and Santander.  A3/A.  +75bps, +90bps and +100bps.