USD Swaps: Yields edge lower with key data, bank results on the horizon

Yields edge lower with key data on the horizon

With European fixed income in the red and the Bund a point lower as the markets catch-up with USTs post-NFP price action, the 5y Treasury is 3.51% (-1bp) after testing 3.475% in early trading, while UST yields are lower are lower in parallel across the curve. Shorter in, SOFR futures are 2-3 ticks higher in the reds and swap spreads are narrowly tighter with 2s at 3.25bps (-0.25), 5s at -21.125bps (-0.125), 10s at -28.50bps (-0.25) and 30s at -69.75bps (-0.125). Swap volumes are below-normal in most areas of the curve, expect for the 30y bucket.  

In the news, the JP Morgan Treasury client survey showed fewer neutrals and more shorts in the latest data. The ‘All clients’ net short balance increased to -6% in the week to April 10 from +2% in the previous week, while the ‘Active clients’ net short grew to -22% from -11%. 10y Treasury yields backed up by almost 10bps over the period, mostly after the NFP data.

Next up, Treasury will sell $40bn in 3y notes today and the Fed’s Goolsbee, Harker and Kashkari are due to speak. However, Wednesday’s CPI data are the week’s main event with Deutsche Bank seeing a +0.39%mom/+5.6%yoy print for core keeping three-month annualized (5.1% vs. 5.2%) and six-month annualized (4.7% vs. 5.1%) core inflation rates well above the Fed’s target.  In coming months, Deutsche forecasts continued strength in rents and it expects the “large” increases in wholesale used car prices (up about 9.4% since November) to make their way into the CPI, implying that inflation may continue to exceed the Fed’s baseline expectations.

Banks to report Q1, start to leave blackout from Friday  

Risk assets are edging just into the red at the time of writing with Nasdaq futures -0.2%. Ahead, most US banks remain in blackout until Friday April 14th when JP Morgan, Citigroup and Wells Fargo report Q1 2023 results, followed by Bank of America and Goldman Sachs on Tuesday April 18th, and Morgan Stanley on Wednesday April 19th. Given the March bank Madness and deposit flight away from regional banks and towards money market funds and GSIBs, results and commentary from the smaller names will be of more interest than normal, with PNC kicking off the season on Friday April 14th.   

Data released last week showed total banking deposits rose in the week to March 29 with deposits at domestic large banks (the top 25) up $48.7bn while small banks at smaller banks increased by $25.7bn.  Barclays reviews the deposit data and concludes that they suggest banking sector stress “continues to dissipate,” noting that emergency Fed lending was also down a tad.

Jamie Dimon took a similar view late last week. The JP Morgan CEO told CNN that “This is not 2008. This is much more limited. There are only a handful of banks that had this particular problem. They'll eventually be resolved one way or another. And I think then people should take a deep breath. In a week or two a lot of these banks can report earnings. I think they'll probably be pretty good. The Federal Reserve made some bold, dramatic moves to help it easier for some of the issues they had, and I'm hoping it will resolve rather shortly…I think we're getting near the end of this particular crisis.”

For the largest banks, Barclays’ equity analysts note that Citigroup said previously it sees its Q1 trading revenues "tracking down in the high-single digits y-o-y", while JPM said it expects Q1 trading revenues to be “slightly down” y-o-y from a strong Q1 2022 with results reflecting "strength in macro though commodities faces particularly tough comps, improvement in credit, and continued pressure in securitized products," according to Barclays. As for the market background, bonds and equities both rose through the quarter, volumes were mixed and volatility spiked in early March.

Callables and Formosas: CIC

• CIC sold a $100m 15y NC5 zero coupon callable (non-Formosa). The note matures Apr 2038, is callable annually from Apr 2028 and has an estimated IRR of 5.26%. Lead is CIC Singapore. 

New issues: MUFG

• MUFG plans USD 3y NC2 floating, 3y NC2, 6y NC5 and 11y NC10 fixed TLAC bonds at around Treasuries +185, 200 and 225bps respectively.  Leads are MS and MUFG.