USD Swaps: Teeny-tiny dose of ‘bad news is good news’; 30y bond supply hurdle

Vaccination vial 9 Nov 2020
Today’s jobless claims was a teeny-tiny dose of ‘bad news is good news’ for both risk assets and USTs. JP Morgan weighs the 30y prospects.

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  • Teeny-tiny dose of ‘bad news is good news’; 30y bond supply hurdle

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    Teeny-tiny dose of ‘bad news is good news’; 30y bond supply hurdle

    Markets have received a teeny-tiny dose of ‘bad news is good news’ when it comes to the Fed which has helped ease some pre-NFP jitters ahead of tomorrow's highly anticipated payrolls print.  Indeed, jobless claims this morning ticked up to a higher that expected +211k (versus +195k Bloomberg consensus…and the highest reading since December) ahead of tomorrows’ jobs data which is expected at +225k at the headline level.


    And while today’s data may be a small consolation amid the recent wave of stronger-than-expected data that has hit the tape, it has been enough to assuage investors as the major domestic equity indices are modestly higher (Dow +0.15%, S&P +0.44%, Nasdaq +0.31%) while USTs are clawing back some of their recent slide in today’s bull steepener.


    Currently, the benchmark 2y note yield is 8.4bps lower at 4.986% while the 2s10s spread is 7bps wider at -101.65bps.  In other quadrants of the front-end red and green SOFR futures are similarly 2.5 to 8 ticks firmer but Fed funds OIS future are still seeing a peak slightly above 5.62% implied for Oct23.  And in swaps, spreads are lightly bid-across the board amid below average activity overall, if best seen at the 10y and 30y points. In the backdrop, IG issuance is seeing another small peppering of new deals with utility names dominating today’s roster.


    Ahead, Treasury will wrap up this week’s coupon supply cycle with today’s $18bn 30y bond reopening after yesterday’s $43bn 10y note auction had a bit of a bumpy landing by tailing 2.5bps and exacerbating the session’s UST sell-off (see Total Derivatives). Heading into today’s auction, strategists at JP Morgan provide the following assessment:


      ”…The February auction cleared 3.5bp cheap to pre-auction levels, the largest tail since November 2021, as end users were awarded 84.2%, 6.8%-pts below the previous auction. Investor class auction allotment data shows foreign takedown ticked down to 12.9%, while investment manager demand declined 7.4%-pt to 65.4%.


      “…30-year yields have risen 19bp since the February auction, but the curve has flattened in the recent move to higher yields. Additionally, risk appetite might remain low ahead of Friday’s payrolls report, as this outcome of this release is likely to be influential in calibrating the market’s expectations for the size of the hike at the March FOMC meeting.


      “…. Against this backdrop, we think (today’s) auction is likely to require a further concession from current levels.


    Currently, SOFR swaps – 2s 8.25bps (+0.75bps), 3s -6.75bps (+1bps), 5s -20.375bps (+0.875bps), 7s -29.625bps (+1bps), 10s -26.75bps (+0.75bps), 20s -62.5bps (+0.5bps), 30s -68.375bps (+0.5bps).



    New issues

    • AEP Transmission is working on a 30y benchmark via Scotia, BNYM, CS, MS and TSI.  A2/A-/A.  Price talk: +180bps area.


    • Kentucky Utilities is working on a $300m 10y FMB deal via WFS, GS, MUFG and TSI.  A1/A.  Price talk: +180-185bps area.


    • Louisville Gas & Electric is working on a $300m 10y FMB via WFS, GS, MUFG and TSI.  A1/A.  Price talk: +180-185bps.


    • Idaho Power is working on a $350m 30y deal via JPM, USB and WFC.  A2/A-.  Price talk: +190bps area.


    • OCI is working on a 10y benchmark via MUFG, BofA and JPM.  Baa3/BBB-.  Price talk: +300bps area.


    • HSBC is working on a self-led 2y fixed/FRN benchmark.  A1/A-/A+.  Price talk: +100bps area, SOFR equivalent.