USD Swaps: Nascent recovery continues; 7y attempts concession

Line chart 25 Mar 2021
The belly is underperforming in a concession a touch ahead of the last leg of supply - the 7y. Swap spreads are also seeing the belly tightening.

Start a free trial to read this article

Join today to access all  Total Derivatives content and breaking news. Already a subscriber? Please Log In to continue reading.

Or contact our Sales Team to discuss subscription options.

Get in Touch
Blurred image of Total Derivatives article content


  • Nascent recovery continues; 7y attempts concession   

  • New issues  


    Nascent recovery continues; 7y attempts concession    

    Treasury yields are pushing higher as risk sentiment has continued to stabilize. The 10y note yield is last 1.5bps higher at 3.585% while 7y is 2bps higher in yield at 3.654%. On the curve, 2s10s is 0.75bp higher to -51bps as the flattening of the last couple of sessions has subsided to a slight belly underperformance thus far. After pricing in three cuts by year end last week, front end EDs have pulled back to just over 50bps of cuts. Elsewhere, equities have started off with a bang, led by tech shares (DJIA +0.76%, S&P +0.98% and Nasdaq +1.33%).


    Swap spreads are wider in the wings versus the belly of the curve amid mixed volumes best seen in the 7y ahead of today’s $35bn 7y auction.


    Looking at the stats of the 7y last month, analysts at JP Morgan see the February auction “cleared 1.4bp cheap to pre-auction levels as the share of end-user demand decreased 7.6%-pts to 86.3%” while the allotment data shows “foreign investor takedown declined 10.3%-pts to 10.8%.”


    Since the previous auction, 7y yields “have declined 40bp and intermediate Treasuries remain slightly rich relative to their fundamental drivers," JP Morgan finds and while along the curve, the 7y sector appears “fairly valued versus the wings” after adjusting for the level of yields and the shape of the curve.


    Meanwhile as WI roll opened at -1.5bp, or “roughly in line” with the bank’s estimate, and has since richened “somewhat." 


    Overall, JP Morgan suggests “given the valuation backdrop and low risk appetite, we believe this auction is likely to require some concession from current levels in order to be absorbed smoothly.”


    In other supply, IG supply has been chugging along this week with just under $20bn priced thus far and today’s slate sees a smaller number of issuers in the market compared to ten issuers seen both Monday and Tuesday.


    2s +2bps (+1bps), 3s -13.125bps (+0.625bps), 5s -23.375bps (+0.125bps)*, 7s -31.75bps (-0.75bps), 10s -30.625bps (-0.375bps), 20s -68.75bps (+0.25bps), 30s -76.5bps (-0.125bps).


    *adjusted for the 0.25bp roll



    New issues


    • All State is working on a $TBA 10y. Leads BofA, JPM, Loop, MS and WFS. A3/A-. Price talk +195bps area.  


    • Aviation Capital Group plans a $TBA 5y. Leads BNPP, DB, GS, RBCCM and SocGen. Baa2/BBB-. Price talk +312.5bps.


    • New York Life is working on a $TBA 2-part FA-backed (3y FRN and 3y fixed). Leads BofA, GS,. Mizuho and Siewil. Aaa/AA+/AAA.


    • Archer Daniels Midland plans a $500m 10y. Leads BofA and Citi. A2/A/A. Price talk +140bps area.


    • Dutch development bank FMO (AAA) plans a $500m 2y at around swaps +27bps through BofA, Daiwa, HSBC and JPM.


    • Al Rajhi Sukuk launched a $1bn 5y sust. Sukuk. Leads RJHI, Citi, Enbr, GS, HSBC, JPM, KCIC, Standard Chartered. A1/A-. +110bps.