USD Swaps: CPI does not rock the boat; USTs rally modestly

Calm waters
USTs saw a brief double digit rally in the front end after CPI, but that has since been given back to a modest 4bps drop. 10y and FOMC minutes ahead.

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  • CPI does not rock the boat; USTs rally modestly

  • New issues


    CPI does not rock the boat; USTs rally modestly 

    CPI came in a touch lower than expected (0.1%mom/5.0% yoy, core 0.4% mom/5.6% yoy vs. forecast 0.2%/5.1%, core 0.4%/5.6%) while NSA came in at 301.836 versus 302.241 forecast and 302.224 trading yesterday.  Treasuries bull steepened with front end rates dropping double digits initially in the wake of the data, but since then much of the move has been given back. TIPS BEs are down -15bps in the 2y and off around -5bps in the 5y, -2bps in the 10y. Equities are nursing mild losses (DJIA -0.14%, S&P -0.06% and Nasdaq -0.63%).


    The 2y note yield is last 3bps lower at 4.002% after a brief stab down at 3.87% while the 10y note yield is last 3.411% or 2bps lower in yield. 2s10s is 0.5bp steeper at -59.25bps while 5s30s is 4.9bps steeper at 14bps. In Fed speak, Richmond's Barkin (alternate voter) stated after CPI "I certainly think we are past peak inflation, but we still have a ways to go." 


    Swap spreads have come off the wides of the morning with the belly outperforming relative to tightening of the wings. In IG issuance, Walmart announced a 5-part deal after the CPI print. Meanwhile, $32bn 10y auction is on deck, ahead of the FOMC minutes.


    Analysts at JP Morgan preview the 10y auction, noting that last month’s 10y “cleared at 3.985%, 2.9bp cheap to pre-auction levels, as end-user demand declined 12.3%-pts with a large contraction in foreign demand from 37.8% in February to 13.0% in March.”


    Since then, “10y yields have declined 55bp since the last auction and have run ahead of their fundamental drivers amid the rally and appear rich to fundamental drivers,” the bank finds. Furthermore, “the 10y sector looks slightly rich on the wings after adjusting for rate levels and curve.”


    Turning to positioning, JP Morgan’s Treasury Client Survey shows that their clients “are now the most net short since February 21, but the share of neutrals remains elevated at 72%.” Thus, overall, “given rich valuations and weak risk appetite," JP Morgan believes the auction is "likely to require a further concession from current levels.”


    2s +2.5bps (-0.625bps), 3s -9.75bps (+0.625bps)*, 5s -21.125bps (+0.25bps), 7s -28.5bps (unch), 10s -29.125bps (-0.375bps), 20s -63.875bps (-0.625bps), 30s -71bps (-0.625bps).


    *adjusted for the 0.5bps give.



    New issues


    • Southern California Edison has mandated RBC, Barclays and Citi for a series of investor meetings commencing tomorrow with respect to an offering of Green Senior Secured Recovery Bonds. 


    • OMERS Finance Trust plans a $TBA 5y. Leads BofA, Citi, RBCCM, TD. Aa1/AA+/AAA. Price talk mid SOFR swaps +90bps. Expected to price tomorrow. 


    • Walmart is working on a $TBA 5-part (3y, 5y, 7y, 10y and 30y). Leads Citi, HSBC and Mizuho. Aa2/AA/AA. Price talk +60/65bps, +75/80bps, +85/90bps, +95/100bps and +120/125bps.