USD Swaps: Powell redux a calmer affair; 10y up to bat

Calm 23 Nov 2020
Powell’s second day of testimony in Washington is proving a calmer affair, with USTs modestly bull-flattening. The 10y is up to bat and JPM previews

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  •  Powell redux a calmer affair; 10y up to bat

  • New Issues


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    Powell redux a calmer affair; 10y up to bat

    Fed Chair Powell already shocked and awed the markets yesterday – with many banks now tweaking up their outlook for a March hike to 50bps (see Total Derivatives) – so his identical statement today before the House Financial Services Committee has hit the tape with little fanfare thus far.


    Accordingly, the major domestic equity markets are largely treading water (Dow -0.22%, S&P +0.24%, Nasdaq +0.22%) thus far while Treasuries are bull-flattening modestly despite this morning’s stronger -than-expected ADP employment data (+242k  versus +200k Bloomberg consensus plus upward revision of +13k to the prior month). 


    Currently, the benchmark 10y note yield is 3.3bps lower at 3.93% while the 2s10s spread is another 2.3bps narrower to -107.2bps – a level/inversion last seen way back in September 1981 -  with one source seeing the spread potentially reach -150bps by the summer.


    Meanwhile, SOFR futures are seeing the reds and greens up 1 to 4.5 ticks while Fed fund OIS futures are now seeing a peak slightly above 5.62% implied for Oct23.  And in swaps, spreads are mostly lightly bid amid below average activity with a handful new IG deals deal stepping up to the plate today in the backdrop.


    Ahead, Treasury will float the second batch of this week’s coupon supply with today’s $32bn 10y note auction after yesterday’s $40bn 3y note auction stopped 0.5bps through bidding levels and left dealers with their smallest 3y note allocation on record at 16.8%.  Heading into today’s auction, strategists at JP Morgan provide the following assessment:


      ”… . The February 10-year cleared at 3.613%, 2.9 through pre-auction levels, as end-user demand rose to a record 94.6%, driven by a 24.5%-pts jump in foreign demand to 37.8%, the most since February 2022.


      “…Despite rising 36bp since the February auction, 10-year yields are still too low after controlling for the market’s Fed policy, inflation, and growth expectations.


      “…Turning to relative value, the 10-year sector looks fairly valued on the wings after adjusting for rate levels and curve slope


      “…With outright valuations looking rich, uncertainty elevated after Powell’s comments today, and risk appetite likely somewhat low ahead of Friday’s data, we think (today’s) auction is likely to require a further concession from current levels.


    Currently, SOFR swaps – 2s 8.75bps (-0.25bps), 3s -6.375bps (-0.75bps)*, 5s -20.625bps (+0.125bps), 7s -30bps (+0.375bps), 10s -27.125bps (+0.125bps), 20s -62.25bps (+1.25bps), 30s -68.75bps (-0.25bps).


    * adjusted for the 2.7bps give.



    New issues

    • Private Export Funding is working on a $300m 2y deal via BofA and Citizens.  Aaa/AA+.  Price talk: +45-50bps area.


    • Popular is working on a 5Y benchmark via BofA, GS and MS.  Ba1/BB+/BBB-.


    • Kenvue is working on an 8-part 2y, 3y, 5y, 7y, 10y, 20y, 30y and 40y benchmark via Citi, GS and JPM. A1/A.  Price talk: +70bps area, +85bps area, +100bps area, +115bps area, +125bps area, +130bps area, +150bps area, +165bps.


    • System Energy Resources Inc. is working on $300m 5y FMB deal via MS and RBC. Baa1/A.  Price talk: +300bps area.


    • Bank of Sharjah (BBB+) plans a USD 5y at around Treasuries +low 300bps. Leads are ADCB, ABKGCO, Ca, ENBD, FAB, JPM (B&D) and MASHRQ.