USD Swaps: Poor 10y result greases USTs selloff

Oil covered hands
The 10y reopening suffered a large tail and USTs slid lower. The curve ended flatter. Swap spreads marched in narrower. IG priced $8bn.

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  • Poor 10y result greases USTs selloff

  • New issues


    Poor 10y result greases USTs selloff

    Treasuries sank back lower this afternoon, with a poor 10y auction adding pressure. The 10y note yield is last 1bps higher at 3.979% after dropping down through 3.90% briefly this morning. 2s10s is last -108.6bps (-3.7bps flatter) after hitting -111bps midday. 5s30s is last 1.8bps flatter at -45.7bps. Equities came off the lows to end with modest gains/losses (DJIA -0.15%, S&P +0.07% and Nasdaq +0.38%).


    This afternoon, the Beige Book reported “modest” gains in economic activity at best, while inflation pressures remained “widespread” and labor market conditions remained “solid.” On balance, the Beige book saw supply chain disruptions continuing to ease.


    Earlier, Powell told the House Financial Services Committee that “no decision” has been made yet on the pace of the March hike, but added “if the totality of the data were to indicate that faster tightening is warranted, we’d be prepared to increase the pace of hikes.”


    As for the $32bn 10y reopening, the auction drew a rate of 3.985% or a 2.5bps tail compared to the 1pm bid side. Indirects dove lower (62.3%) while directs rose a bit (20%), leaving primary dealers with a large 17.7% allocation. The 2.35x bid-to-cover was weak.


    As for IG supply, the spinoff of J&J consumer health Kenvue accounted for the majority of the supply today as it priced a $7.75bn 8-part that spanned from 2y out to 40y. IG new issuance (ex-SSA) for the week currently stands at $35.5bn – roughly in line with estimates for the week, sources note.


    Looking at front end spreads, despite what appeared to be already rich levels, analysts at Citigroup find that 2y spreads have richened further “as the probability for a 50bp March hike has increased and peak Fed funds has moved higher, like the pattern between yields and front-end spreads last year.”


    Versus its fair value model based on 3m FF-OIS/GC and 2y SOFR/FF basis, Citigroup sees 2y spreads “3.5 sigmas rich (~15bp).” Citigroup believes that the richening in front-end spreads over the past few weeks “has been driven by increased duration shorts which has cheapened swaps.”


    Moreover, Citigroup suggests that demand “may have increased for front-end cash as well with yields marching towards 5%” while “custody holdings at the Fed have been increasing which is a key richening risk.” With this, the bank closes out its short spread position at a loss, although the bank still expects 2y spreads to cheapen throughout the year.


    2s 7.75bps (-1.25bps), 3s -7.375bps (-1.875bps)*, 5s -21.25bps (-0.5bps), 7s -30.625bps (-0.25bps), 10s -27.375bps (unch), 20s -63bps (+0.5bps), 30s -68.75bps (-0.25bps).


    *adjusted for the 2.7bps give.



    New issues


    • Kenvue launched a $7.5bn 8-part ($750m 2y, $750m 3y, $1bn 5y, $1bn 7y, $1.25bn 10y, $750m 20y, $1.5bn 30y and $750m 40y). Leads Citi, GS and JPM. A1/A.  +45bps, +60bps, +75bps, +85bps, +95bps, +100bps, +120bps, +135bps.


    • Popular priced a $400m 5y. Leads BofA, GS and MS.  Ba1/BB+/BBB-. +300bps.


    • System Energy Resources Inc. priced a $325m 5y FMB deal via MS and RBC. Baa1/A.  +255bps.


    • Bank of Sharjah (BBB+) priced a $500m5y. Leads ADCB, ABKGCO, Ca, ENBD, FAB, JPM (B&D) and MASHRQ.  +310bps


    • Private Export Funding priced an upsized $450m 2y. Leads BofA and Citizens.  Aaa/AA+. 5.52%. Upsized from $300m.