USD Swaps: USTs rally, steepen; Tenuous stability

down chart red 26 May 2022
USTs rallied with the backdrop of weaker data, stronger equities and higher energy. Swap spreads saw a low volume widening. DB examines stresses.

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  • USTs rally, steepen; Tenuous stability

  • New issues


    USTs rally, steepen; Tenuous stability

    Treasuries have rallied into the close with yields currently 1 to 7bp lower, with the long end lagging the rally. The 10y note yield is last 3.423% or 5bps lower on the day. As for the curve, 2s10s is 1bp steeper at -54.9bps and 5s30s 4,8bps higher at 12.6bps. Equities ended mixed (DJIA +0.98%, S&P +0.27% and Nasdaq -0.25%). Overall, one source felt that the market still trades “defensively” and not with a lot of conviction and risk appetite.


    The KBW Banking Index closed -0.5% and regional banking shares were mixed (PacWest +3.6%, Zions -2.5% and First Republic +2.8%). Elsewhere, energy jumped after OPEC+ announced a cut in supplies unexpectedly (Brent +6.3%, WTI +6.3% NYH gasoline +3.2%), sending short dated BEs rising up to 22bps (Jul 2023s) against a 2.5bps softening in long dated 30y BEs.   


    Swap spreads widened out amid low volumes. Elsewhere, short dated options continue to reflect a premium for protection against the threat of lower rates (see Total Derivatives). On the IG supply side, just over $3.5bn priced across four issuers, with the volumes for the day led by a $2.25bn 2-part from GM Financial. In addition three SSA issuers announced today (to price tomorrow) and will likely be swapped (KfW 3y, World Bank 5y and IADB 10y).


    Elsewhere, analysts at Deutsche examined stress indicators over the past week. Some highlights include its assessment of broad financial conditions which Deutsche sees “eased over the past week but remain tighter than before the emergence of stresses” with its high frequency FCI “now a bit less than one standard deviation tighter than the historical average.”


    Similarly, Deutsche finds that financial stress metrics from regional Feds “have turned a bit higher.” For example, in H8 data from the banking system “was consistent with the narrative of large US banks experiencing large deposit outflows (-$136bn) and selling securities to raise cash (-$27bn USTs, the largest sale in two years)” while “large banks still lost $79bn in cash assets during the week,” Deutsche highlights.


    On the other hand, it points out “small banks only lost $7bn in deposits, a substantial moderation in contrast to the $112bn of outflows from the prior week of March 15th” and small banks “also reduced borrowing by $16bn while selling $5bn of securities, leading to a net loss of $10bn in cash assets.”


    Meanwhile, Deutsche saw funding markets “showed signs of a return to normalcy, with declines in unsecured borrowing rates and narrowing short end FX bases over the course of the week” and in secured funding markets, “SOFR and GCF were elevated to RRP (reflecting quarter-end pressures), while 3m SOFR/FF basis moved higher.”


    2s +3.875bps (+0.75bps), 3s -11bps (+0.25bps), 5s -23bps (+0.5bps), 7s -30.75bps (+0.75bps), 10s -29.25bps (+0.25bps), 20s -65.625bps (+0.75bps), 30s -71.125bps (+1.25bps).



    New issues

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


    • KfW plans a $TBA 3y. Leads DB, HSBC and JPM. Aaa/AAA/AAA. Price talk mid swaps +22bps. Expected to price tomorrow.


    • World Bank is working on a $TBA 5y sust. fixed. Leads Citi, RBCCM, TD and WFS. Aaa/AAA. Price talk SOFR mid swaps +39bps area. Expected to price tomorrow.    


    • IADB plans a $TBA 10y sust. Leads BMO, BofA, DB and MS. Aaa/AAA. Price talk SOFR mid swaps +54bps. Expected to price tomorrow.


    • REC Ltd. plans a $TBA 5y Green. Leads Barclays, DBS, MUFG, Standard Chartered, State Bank of India.  Baa3/BBB-. Price talk +250bps area.


    • Ford Motor Credit priced a $1.5bn 5y. Leads Citi, JPM, MS, SMBC, SocGen. Ba2/BB+/BB+.  6.8%.


    • GM Financial priced a $2.25bn 3-part ($1.25bn 3y fixed and $1bn 7y fixed). Leads JPM, Mizuho, Santander, SMB, WFS. Baa2/BBB/BBB-. +170bps and +240bps. It dropped plans for a 3y FRN.  


    • McCormick priced a $500m 10y. Leads BofA, TSI, WFS. Baa2/BBB. +153bps.


    • Evergy Metro priced a $300m 10y. Leads BofA, JPM and MS. A2/A+. +153bps.


    • Shinhan Bank priced a $500m 5y gender equality social bond. Leads BNPP, BofA, Credit Ag, JPM, ScoGen and Standard Chartered. Aa3/A+/A. +107bps.