USD Swaps: Even ‘higher’ for longer? 2s10s hits -100bps

Jay Powell testifying
A higher for longer stance by Powell has caused a stir in today’s price action. 2s10s USTs hits -100bps. JPM previews the 3y note auction.

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  •  Even ‘higher’ for longer?  2s10s hits -100bps; 3y ahead 

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     Even ‘higher’ for longer?  2s10s hits -100bps; 3y ahead 

    Fed Chair Powell currently finds himself in the hot seat again before the Senate Banking Committee.  And while many of the headlines from his speech have already been telegraphed in one form or another by numerous Fed officials over the past few weeks, headlines today that “the ultimate level of interest rates is likely to be higher than previously anticipated” is proving another hard pill to swallow for the markets.


    Indeed, the major domestic equity indices have made a quick beeline into the red but are off their initial post-headline troughs (Dow -0.53%, S&P -0.69%, Nasdaq -0.37%).  Similarly, the Treasury market took a quick hit but is also in recovery mode as Powell takes questions now.  Currently, the benchmark 2y note yield is last 7bps higher at 4.956% while the 2s10s spread is 6.3bps narrower at -100bps. 


    At the front-end, red and green SOFR futures are currently 2 ticks firmer to 7.5 ticks weaker as the strip flattens in the wake of Powell’s hawk-talk. And notably, the OIS market is now pricing in a 50bps hike in March with the terminal rate seen just south of 5.6% in October.   Meanwhile, swap spreads are narrowly mixed amid paltry activity as all eyes and ears remain on Powell.  That said, numerous syndicate desks remain rather busy today as a slew of new IG deals have hit the tape today (See below).


    Ahead, the Treasury kicks off the March coupon supply cycle with today’s $40bn 3y note auction, unchanged from last month.  Heading into the supply, strategists at JP Morgan think that the auction should go smoothly barring any unforeseen tape bombs from Powell during his testimony.   JP Morgan expounds on its auction preview below:


      ”… Since the last auction, 3-year yields have risen 55bp to near their cycle highs in November while from a relative value perspective, the sector appears slightly cheap along the curve after adjusting for rate level and curve slope. Furthermore, we believe yields have limited scope to move much higher from here given the market’s current hawkish Fed pricing and our own forecast for a more benign labor report this week


      “… Additionally foreign end-user demand has been high at the last two auctions and the decline in the dollar over the past two weeks may provide further support. We acknowledge that Chair Powell’s testimony in the morning could set the tone for markets, to the extent that he provides any near-term guidance in policy, though in contrast to last month’s auction, his prepared remarks will be published well in advance and the testimony will not coincide with the auction process itself.


      “…Overall, given the recent backup in yields and cheap relative valuations, we think the auction could be digested smoothly, but are cognizant that Powell’s testimony in the morning presents event risk ahead of the auction.”


    Currently, SOFR swaps – 2s 9.25bps (+1.25bps), 3s -8.125bps (+0.25bps), 5s -20.25bps (-0.25bps), 7s -30.25bps (+0.125bps), 10s -27bps (+0.25bps), 20s -62.5bps (+0.5bps), 30s -67.875bps (-0.375bps).



    New issues

    • TransCanada PipeLines is working on a 3NC1 fixed/FRN benchmark via BofA, CB and SMBC.  Price talk: +170bps area, SOFR equivalent.


    • Nestle Holdings is working on 4-part 3y, 5y, 7y and 10y benchmark via BN PP, BofA, Citi, HSBC and JPM.  Aa3/AA-.  Price talk: +70-75bps, +85-90bps area, +95-100bps area, +105-110bps area.


    • HP Enterprise is working on a 1.5y and 3y benchmark via HSBC, JPM and NatWest.  Baa2/BBB/BBB+.  Price talk: +115-120bps area, +160-+165bps area.


    • CCDJ is working a 5y benchmark via Barclays, Citi, GS, JPM and TD.  A1/A-/AA-.  Price talk: +160bps area.


    • Evergy Kansas Central Inc. is working on a $400m 30y FMB deal via RF, TD, USB and WFS.  A2/A.  Price talk: +185bps area.


    • Harley-Davidson Financial is working on a 5y benchmark via Barclays, GS and WFS.  Baa3/BBB-/BBB+.  Price talk: +240bps area.


    • Texas Instruments is working on a 10y and 30y benchmark via Barclays, BofA and MUFG.  Aa3/A+.  Price talk: +105-100bps area, +125bps area.


    • Caterpillar Financial is working on a 2y fioxced/FRN benchmark via BofA, Citi and MUFG.  A2/A/A.  Price talk: +55bps area, SOFR equivalent. 


    • Magna International is working on a 3NC1 and 10y benchmark via BofA, Citi and JPM.  A3/A-.  Price talk: +145bps area, +175bps area.


    • Islamic Development Bank is preparing a USD 5y Sukuk at swaps +55bps. Leads are BNPP, Citi, BARWA, ENBD, HSBC, ISLDEV, SMBC Nikko, SocGen and StanChart (B&D).


    • The African Development Bank (AfDB) launched a $2bn 5y benchmark via Barclays, Credit Agricole, Deutsche, JPM and TorDom. Aaa/AAA/AA.  Swaps +33bps.


    • NIB launched a $1.5bn 5y Global at swaps +30bps. Leads are BofA, BMO, Nomura and RBC. Aaa/AAA.