USD Swaps: USTs jolted higher by JOLTS data; Still following the money

Chart up line Oct 2022
A larger-than-expected dip in JOLTS job opening had shifted USTs into bull-steepening mode. BofA’s latest money flow update.

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  • USTs jolted higher by JOLTS data; Still following the money

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    USTs jolted higher by JOLTS data; Still following the money

    A larger-than-expected dip in JOLTS job openings (9.931m versus 10.5m Bloomberg consensus, 10.563m revised prior) and softer-than-expected factory orders data (-0.3% MoM versus 0% consensus) have reinvigorated the bond market bulls this morning after a softer opening. 


    Indeed, the market has shifted back into bull-steepening mode with the benchmark 2y yield currently 11.1bps lower at 3.852% after spending the early trade hovering above 4% today.  On the curve, the 2s10s spread is 5.9bps wider at -49.7bps while the 5s30s spread is 4.2bps wider at 16.8bps.  Meanwhile, SOFR futures are 7 to 14 ticks firmer as the strip also bull-steepens this session. 


    In swaps, spreads are mixed amid below-average SOFR volumes in all tenors with the spread curve steepening along with underlying rates today.  In the backdrop, IG issuance is picking up again despite a soured risk tone (Dow -0.7%, S&P -0.35%, Nasdaq -0.66%) with the biggest footprint today likely being seen by World Bank’s long $5bn 5y. 


    Elsewhere, after the recent financial/banking butchery over the past few weeks, strategists at BofA started taking a look at how money is moving around the US financial system and what this implies for bank stress (see Total Derivatives for the previous update).  Today, BofA has provided its latest update with its real-time assessment of how funds are flowing in the system using daily & weekly data across JFLBs, MMF, and the Fed:


      ”…Key takeaway: banking system stress remains high, but there are signs of stabilization / tentative improvement. ON RRP reversed typical quarter-end take-up but MMFs continue to see inflows. FHLB Office of Finance (OF) data released yesterday showed FHLB debt outstanding grew $247b in March.


      “…FHLB activity: FHLB debt issuance is the best barometer for bank advance / loan demand. We now track this using Bloomberg & FHLB OF data.


      FHLB net issuance declined $3b on Monday, April 3 after declining $23.2b on quarter-end, which shows a significant slowdown from $189b at the start of bank stress. This is likely due to a slowdown in bank demand for funding via FHLB advances. Official FHLB data shows FHLB debt grew $247b in March.


      “…Money market funds: MMF flows can represent cash moving around the system or cash leaving commercial banks. To track outflows from the banking system, we think the relevant statistic to watch is increase in Fed ON RRP or the Treasury cash balance.


      MMF experienced inflows of $4b on quarter-end, according to Crane data. This brings the two-week average to $19b in inflows per day. In total, MMFs are up $323b since March 10th. As FHLB debt declines & bill supply remains low b/c debt limit, MMFs will likely continue to shift into ON RRP, which represents cash leaving the banking system.


      “…ON RRP: take-up dropped $154b on Monday, a reversal of quarter-end inflows as expected.


      “…Fed bank data: late Friday, the Fed released updated bank H.8 data as of Mar 22. Our take: large US banks saw deposit outflows that largely shifted into MMF & Fed ON RRP. Large banks facilitated these deposit outflows by lower cash & to a much lesser extent securities. Small US banks saw much smaller deposit outflows, implying increased stability of their funding base.


      Fed H.4.1 data from March 29th shows $34bn w/w bank reserve increase likely from banks borrowing from the Fed, MMFs cutting ON RRP take-up, and payments from the TGA/Treasury paydowns. Fed H.4.1 also shows a reduction in borrowing from Fed liquidity programs (DW, BTFP; FIMA repo, CB swap lines.”


    Currently, SOFR swaps – 2s 2.875bps (-0.875bps), 3s -12.25bps (-1.5bps), 5s -23.125bps (unch), 7s -30.875bps (+0.125bps), 10s -30.125bps (-0.375bps), 20s -64bps (+1.75bps), 30s -70.25bps (+0.75bps).



    New issues

    • Quebec is working on a 5y benchmark via BofA, CIBC, JPM, RBC and TD.  Aa2/AA-/AA-.  Price talk: SOFR MS + 58bps.


    • WEC Energy is working on a $250m tap (4.75% 2026) via Barclays and TD.  Baa1/BBB+/BBB+.  Price talk: +110bps area. 


    • Pilgrim’s Pride is working on a 10y benchmark via Barclays, BofA, BMO, Citi, MIZ and RBC.  Na3/BBB-/BBB-.  Price talk: +337.5bps area.


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