USD Swaps: Fed views tweaked; 30y supply ahead
USTs edge lower with 30y supply ahead
A parallel selloff has seen the 30y yield edge up to 3.65% (+3bps) ahead of today’s $18bn re-opening after briefly testing 3.58% in the wake of the CPI headlines yesterday. European fixed income is also just in the red against a backdrop of rising euro new issuance (Total Derivatives) and a 0.4% gain for the Euro Stoxx. Dollar issuance is more subdued but US banks’ blackout period starts to lift from tomorrow and SOFR spreads are ticking wider today with 2s at 2.50bps (+0.50), 5s at -21.125bps (+0.125), 10s at -29.75bps (+0.125) and 30s at -71.75bps (+0.25). Swap volumes are below-average across the curve.
Next up, initial claims are seen little-changed at 235K for the latest week while consensus for PPI is 0.0%mom/3.0%yoy, down from 4.6%yoy last month.
Fed finely balanced from here: Banks
SOFR futures rose by 8.5 to 13.5 ticks in the reds yesterday and have only taken back 1.0-3.5 ticks of the rally in early trading today with the peak in the strip now around 4.95% implied for Jun23 versus a latest SOFR fix of 4.80%.
Meanwhile strategists have only mildly tweaked their Fed views following the CPI data and the minutes. For instance, NatWest now reckons that tightening in lending could show more pervasively in the Fed’s latest Senior loan officer survey, which will be available for the May 3 FOMC meeting. It judges that this could “reinforce the idea that the credit crunch is likely to intensify and put pressure on Fed officials to end the hiking cycle and perhaps consider easier policy sooner than their SEP from March suggest.”
NatWest had been expecting rate cuts to be delayed to “early 2024.” However, it’s now “starting to think” that a worsening credit crunch could lead to rate cuts “later this year.”
On average, according to NatWest, the Fed has begun easing seven months after the end of the end of the past six tightening cycles, with the lag ranging from one to 14 months.
Elsewhere, Barclays keeps its forecast for a 25bps hike in May. Beyond then, the bank expects the Fed:
- ”To pause and maintain this range through the rest of the year…The FOMC will need to maintain rates at a sufficiently restrictive level for a while in order for inflation pressures to diminish, even in the face of a contraction in activity and a rising unemployment rate. In the event that the economy continues to feature strong momentum and a very tight labor market in coming months, we would expect the FOMC to further raise its fed funds target range after the May meeting.”
Callables and Formosas: EBRD, ING ZCs
- EBRD sold a $100m 20y NC5 zero coupon callable (non-Formosa). The GMTN matures Apr 2043, is callable every 2y from Apr 2028 and has an estimated IRR of 4.595%. Lead is Barclays and announced Apr 12.
- ING sold a $20m 15y NC3 zero coupon callable (non-Formosa). The EMTN matures Apr 2038, is callable annually from Apr 2023 and has an estimated IRR of 5.1288%. Self-led and announced Apr 12.
New issues: Taqa, OMERS
- Abu Dhabi National Energy Company Taqa (Aa3/AA-) plans USD long 5y and 10y (Green) bonds after meeting investors from Apr 13. Leads are BNPP, ENBD, FADB, HSBC, ICBC, Intesa Sanpaolo, Scotia, SMBC Nikko and StanChart
- OMERS Finance Trust plans a $1bn 5y at swaps +83bps. Leads are BofA, Citi, RBC (B&D) and TD. Aa1/AA+/AAA.
- Korea Ocean Business Corp (Aa2/AA-) is preparing a USD 3y or 5y bond after meeting investors from Apr 17. Leads are Citi, HSBC, ING and StanChart.
- Southern California Edison has mandated RBC, Barclays and Citi for investor meetings ahead of a Green Senior Secured Recovery Bond.
- Australia’s Nickel Industries plans a USD 5.5y NC2.5 amortizing high yield (B1/B+) at around 11.5%. Leads are BofA (B&D) and MS.
- Damac Real Estate (BB-) is preparing a USD 3y Sukuk via ADCB, DB, DIB, ENBD, JPM and Mashreq.
- Walmart yesterday priced a $5bn 5-part ($750m 3y, $750m 5y, $500m 7y, $1.5bn 10y and $1.5bn 30y). Leads are Citi, HSBC and Mizuho. Aa2/AA/AA. Treasuries +30, 47, 60, 70 and 90bps respectively.