USD Swaps: Labor pains push 30y back through 4%

Bond chart 30 Jan 2023
Strong labor cost data has pushed 30y yields above 4%, although they are off session highs. Banks warn that rate hikes alone are a blunt tool.

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  • Bonds break 4% after labor cost data

  • BofA: Wait before getting long duration

  • New issues


    Bonds break 4% after labor cost data

    Data showing a jump in unit labor cost growth to 3.2% (versus a 1.6% consensus) added to the pressure on USTs across the curve today with yields 5-8bps stronger led by the long end, with 30y yields off the highs at 4.02% (+7bps) but still joining the 10y in the above-4% club. Stock futures are weaker as well as inflation concerns linger with the selloff led by a 1% drop in Nasdaq futures as long yields rise. In contrast, after a shaky start European fixed income is steadier with the Bund future 15 ticks lower and off early session lows.  


    Swap spreads are mostly a touch tighter as deals arrive from the likes of HSBC, EBRD and L-Bank. Five-year spreads are -19.00bps (-0.25), 10s are -26.75bps (-0.25) and 30s are -67.25bps (unch). Swap flows are strongest in the 7y to 10y area of the curve. 


    BofA: Wait before getting long duration  

    SOFR futures are also 3-9bps lower in the reds and greens wake of today’s labor cost numbers. Writing shortly before the data, analysts at BofA warned that the Fed's policy tools are “blunt instruments” and perhaps, “not the best tool for reigning in demand and inflation, at least compared to fiscal policy.” The bank continued:


      “Because of the offsetting impacts of higher interest rates for borrowers and lenders, it is not automatically obvious that higher rates have a net negative impact on spending and investment. As a result, we think it tends to imply that the Fed might err on the side of higher rates than lower. As Minneapolis Fed President Neel Kashkari said yesterday: "We are not yet seeing much of a sign that our interest rate increases are slowing down the service side of the economy. And that is concerning to me." When in doubt, do more.”


    BofA says that its economics team last month added another 25bp hike to the policy outlook, now totaling three more 25bp hikes across the next three meetings. It concludes:


      “This may get the job done over time. But our team also notes that the latest CPI details suggest a firmer path of inflation with less disinflation in core goods and more persistence in services and food inflation. In our view, this opens up risks towards higher Fed policy rates and is consistent with our Rates team's view for more curve inversion and waiting till we're close to the last hike to more confidently get long duration”


    New issues

    • HSBC plans USD TLAC 6y NC5, 11y NC10 and 21y NC20 bonds at around Treasuries +210, 245 and 245bps. Self-led.  


    • Norinchukin Bank is preparing a USD 5y Green bond at around Treasuries +140bps. Leads are Citi and JPM (B&D).


    • EBRD is preparing a USD 5y Global at swaps +31bps. Leads are Daiwa, GS, JPM and TorDom. 


    • L-Bank plans a $2bn 3y at swaps +26bps via BMO, DB, JPM (B&D) and RBC.


    • Morocco (Ba1/BB+) priced $1.25bn  5y and $1.25bn 10.5y bonds at Treasuries +195 and 260bps. Leads are BNPP, Citi, DB and JPM (B&D).


    • Stanley Black & Decker yesterday priced a 2-part $350m 3y NC1 fixed and $400m 5y. Leads are BofA, Citi, JPM and WFC. Baa2/A/BBB+. +165 and 175bps.


    • Sumitomo Trust yesterday priced $1bn 3y fixed, $500m 3y Floating and $500m 4y Green bonds at Treasuries +110bps, SOFR +112bps and Treasuries +128bps, respectively. Leads are BNPP (5y), BofA (5y), CA (5y), Citi (3y), Daiwa, GS and JPM.