USD Swaps: Bear flattening; 2y weak; Tepid banking rebound

Chart up arrow Oct 2022
USTs bear flattened amid lightly better sentiment and a poor 2y auction result. Swap spreads narrowed from the morning highs. IG priced $9.6bn.

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  • Bear flattening; 2y weak; Tepid banking rebound  

  • New issues  


    Bear flattening; 2y weak; Tepid banking rebound   

    Treasuries pushed lower this afternoon, after a poor 2y auction result did nothing to prop up the front end. The 2y note yield crossed over 4% once again and is last 4.023% or 25.6bps higher in yield. The 10y note yield has backed up 17bps to 3.543%. 2s10s is 8.6bps flatter at -48.1bps while 5s30s is 7.4bps lower at 16.3bps.


    Equities closed mixed, with tech stocks under pressure (DJIA +0.60%, S&P +0.27% and Nasdaq -0.47%). The banking sector tepidly rose from the lows with the KBW Banking Index rising 2.7% while regional banking shares also rebounded somewhat– with, for example, First Republic shares gained 13.3%, PacWest and Zions both closed +3.7%.


    Meanwhile the $42bn 2y auction tailed roughly 3bps versus the 1pm bid side, drawing a rate of 3.954%. Indirects were much lower at 52.8% while directs were marginally stronger at 24.2% compared to last month and the primary dealer allocation of 23% was the largest since October. The bid-to-cover of 2.44x was weak. Amid the banking turmoil, there wasn’t auctions to contend with (aside from last week’s 20y and 10y TIPS) one source noted and so this week is “a test whether yields can stay on the lower end of the range” with the supply.  


    Swap spreads narrowed in from the early morning wides, with, for example, the 10y spreads hitting a high of -28bps but is last around -29.875bps.  In the front end, analysts at JP Morgan remain biased towards wider spreads:


      “Front end spreads are mostly driven by the level of short rates rather than flight-to-quality flows. While we recognize the risk of narrower spreads due to a rally in rates, 2-year spreads continue to appear narrow to fair value and we continue to remain biased towards wideners and recommend hedging for directional exposure to rates.”


    Elsewhere, JP Morgan now judges 3y spreads to be closer to fair and “no longer appear narrow enough” to warrant maintaining widener exposure. 


    As for IG new issuance, ten issuers, led by a $3bn 4-part from Mercedes Benz, priced a total of $9.6bn, bringing the March month to date to just under $86bn.  


    2s -1.25bps (-0.75bps), 3s -13.125bps (-0.75bps), 5s -22.875bps (-0.875bps), 7s -30.5bps (-0.25bps), 10s -29.75bps (+0.125bps), 20s -68.75bps (-0.375bps), 30s -75.875bps (-1bps).



    New issues

    For a complete review of issuance over the past week, please see USD New Issues.


    • Mercedes Benz priced a $3bn 4-part ($700m 2y fixed, $300m 2y FRN, $1bn 3y and $1bn 5y). Leads Barclays, BBVA, CACIB, Citi, GS and Standard Chartered. A2/A-. +95bps, SOFR +93bps, +105bps and +123bps.


    • Amphenol priced a $350m 3y. Leads BNPP, BofA  and JPM. A3/BBB+. +107bps.


    • Phillips 66 priced a $1.25bn 2-part ($750m short 5y and $500m long 10y). Leads GS, Mizuho, MUFG, SMBC, TD and TSI. A3/BBB+. +140bps and+182bps.


    • Tennessee Valley Authority priced a $1bn 5y. Leads BofA, Barclays, MS and RBCCM. Aaa/AA+/AAA. +45bps.


    • PACCAR Financial priced a $300m 3y. Leads Mizuho, RBCCM, TD and WFS. A1/A+. +68bps.


    • Pioneer Natural Resources priced a $1.1bn 3y. Leads BofA, TD and WFS. Baa1/BBB/BBB+. +132bps.


    • Public Service Co of Colorado priced a $850m 30y FMB. Leads GS, JPM, MUFG, MS and TD. A1/A/A+. +155bps.


    • General Mills priced a $1bn 10y. Leads BofA, Barclays, DB and JPM. Baa2/BBB. +145bps.


    • Wisconsin Power & Light priced a $300m 10y Green. Leads Key, MUFG, TD and WFS. A3/A. +145bps.


    • Berry Global priced a $500m 5y. Leads Citi, JPM and WFC. BBB-/BBB-. +210bps.


    • Penske Truck Leasing priced a $750m 5y. Leads BofA, JPM, Mizuho, Santander and WFC. Baa2/BBB/BBB+. +205bps.   


    • Korea National Oil priced a $1bn 2-part ($550m 3y and $450m 5y). Leads Citi, Credit Agricole, CIBC, HSBC and Mizuho. +120bps and +135bps.