USD Swaps: Yellen assuages; IG deals return; 20y auction preview

US Treasury building 9 Nov 2020
USTs are bear-flattening as helps Yellen assuage banking sector angst. IG deals have returned amid the risk revival. JPM previews 20y auction.

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  • Yellen assuages; IG deals return; 20y auction preview

  • New Issues


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    Yellen assuages; IG deals return; 20y auction preview

    After two chaotic weeks that called into question the very stability of the global financial/banking system, Treasury Secretary Yellen rolled up to the lectern today to assure the American Bankers Association that will be fine in the end.  But sentiment was already on the mends even before Yellen’s comments hit the tape as heavily-watched First Republic Bank shares were up 15% in pre-market trading – and they’re up 44% right now which is helping fuel a broader advance today (Dow +0.77%, S&P +0.69%, Nasdaq +0.76%).


    In rates, Treasuries remains in bear-flattening mode but are off the lows seen earlier. The benchmark 2y note yield is last 14.8bps higher at 4.124% after topping out up at 4.1833% earlier.  Further out, the benchmark 10y note yield is last 6.4bps higher at 3.567%, leaving the 2s10s spread 7.bps narrower at -56.85bps. 


    Meanwhile, red and green SOFR futures 6.5 to 24.5 ticks softer as the strip also bear flattens today while Fed funds futures are still pricing in an 77% chance of a 25bps hike for the Fed tomorrow afternoon.  And in swaps, spreads are wider across the board amid directional paying flows with SOFR volumes running at a below average clip overall.  In the backdrop, IG issuance is finally seeing a tangible rebound (see below) after the recent risk-off-induced shutdown.


    Ahead, Treasury kicks off this week’s supply cycle with today’s $12bn 20y bond auction (unchanged from the last opening), followed by Thursday’s $15bn 10y TIPS re-opening (TIIJan33s).  Heading into today’s supply, strategists at JP Morgan believe that the issue may need to cheapen up further both outright and on the curve to ensure a smooth landing.  JP Morgan highlights the following:


      ”…. The February auction stopped 0.1bp through pre-auction levels, as the share of end-user demand rose to 93.3%, the highest on record. Indeed we saw both the foreign share and investment manager take-down increase above their 6-month moving averages.


      “…Twenty-year yields have declined roughly 25bp since the February auction and are trading near their lowest levels since the begining of February, but the sector has underperformed along the curve with the 10s/20s/30s butterfly widening 9bp since the last auction to its cheapest levels this year.


      “…Despite the recent cheapening, the sector appears rich relative to the wings after adjusting for the level of 20-year yields, the slope of the 10s/30s curve, and the level of HG spreads as a proxy for risk appetite.


      “…Given the richness of the sector and the fact that risk sentiment should stay low ahead of Wednesday’s Fed meeting as well as uncertainty high amid ongoing bank liquidity concerns, we believe that tomorrow’s auction will likely need further concession to be digested smoothly.”


    Currently, SOFR swaps – 2s 1bps (+2.25bps), 3s -11bps (+1.125bps), 5s -18.875bps (+0.875bps), 7s -27.875bps (+1.375bps), 10s -25.5bps (+1bps), 20s -66.5bps (+2.125bps), 30s -73.375bps (+0.25bps).



    New issues

    • Duke Energy Indiana is working on a $500m 30y FMB deal via BofA, Citi, SMBC, TD and TSI.  Aa3/A.  Price talk: +210bpos area.


    • Oklahoma Gas and Electric is working on a $350m 30y deal via WFS, MIZ and RBC.  A3/A-/A.  Price talk: +225bps area.


    • Indiana Michigan Power is working on a $500m 30y deal via BofA, Citi, PNC and RBC.  A3/A-/A.  Price talk: +230bps area.


    • Brown-Forman is working on a 10y benchmark via BofA, Citi, JPM and USB.  A1/A-.  Price talk: +155bps area.


    • Republic Services is working on a 6y and 11y benchmark via BofA, JPM, SMBC, TSI and WFC.  Baa2/BBB+/BBB+.  Price talk: +165bps area, +185bps area.


    • MetLife is working on a 10y benchmark via BofA, Citi, JPM and MIZ.  Aa3/AA-/AA-.  Price talk: +185bps area.


    • NiSource is working a 5y benchmark via WFS, BofA, JPM and MIZ.  Baa3/BBB+/BBB.  Price talk: +200bps area.


    • Southwest Gas is working on a $300m 5y deal via BofA and JPM.  Baa1/BBB/A.  Price talk: +210bps area.


    • Extra Space Storage is working on a $350m 5y deal via JPM, PNC and TSI.  Baa2/BBB.  Price talk: +235bps area.


    • Panama is working on a 2035 tap (6.4% 2/14/35) via GS and Scotia.  Price talk: +350bps area.