USD Swaps: USTs flatter as CPI, FOMC minutes awaited

USTs flatter as CPI, FOMC minutes awaited

Treasury yields remain 2-3bps higher led by the front end while TIPS breakevens are narrowly mixed at -1bps at the very front end to +0.5bps further out ahead of the inflation data. NSA CPI last traded yesterday at 302.21 (5.115059%) in $100m, down a touch from trades at 302.23 (5.12202%) earlier in Tuesday’s session according to the SDR. The Bloomberg consensus for NSA CPI stands another tick firmer at 302.241 and breakevens were led by gains at the front end yesterday on demand from end-users and the dealer community, even with the fixing trading a little lower at the end of the session compared to previous prints.      

BNP Paribas previews the data and while it expects the CPI report to show inflation remaining high, it also reckons it should mark "a peak in the inflation component policymakers care most about – core services.” The bank continues:

“With key Fed officials still communicating the work to be done on the inflation front, we think such sequential price gains should keep it on track to deliver one more 25bp hike at its coming May meeting.

 

“However, these sequential price gains should simultaneously mark a peak in the year-on-year rates for both core services and non-housing core services. In other words, service inflation will have likely peaked, and we now move to the long slog back to target.

 

“Such a peak in year-on-year would be an important signpost that should help the Fed transition to the 'duration spent at restrictive' phase of the tightening cycle from the current hiking phase (after a last 25bp rate hike in May, which remains our base case).”

Also today, Treasury will sell $32bn in 10y notes and, after appearances by Barkin and Daly, the Fed will release the minutes of the March 22 FOMC meeting. The latter may shed more light on the Fed’s real-time view of the turmoil in the banking sector and the impact of the volatility on the timing of its interest rate hikes. 

With issuance seemingly on pause for the inflation data - and banks still under blackout for a few more days - swap spreads are a touch wider with 2s at 3.25bps (+0.25), 5s at -21.125bps (+0.25), 10s at -28.25bps (+0.25) and 30s at -70.125bps (+0.25) with outright volumes running at close to average across the belly of the SOFR curve.   

Callables and Formosas: UOB

• UOB sold a $50m 20y NC6 zero coupon callable (non-Formosa). The EMTN matures Apr 2043, is callable annually from Apr 2029 and has an estimated IRR of 4.79%. Self-led and announced Apr 11.

New issues

• Korea Gas plans a USD bond later this year.

   

• Southern California Edison has mandated RBC, Barclays and Citi for investor meetings ahead of a Green Senior Secured Recovery Bond.