USD Swaps: USTs edge down; JPM FICC flat, VaR lower

JP Morgan 30 Jan 2023
USTs are edging lower ahead of the data and a couple of Fed speakers. JPM beat expectations with FICC flat, VaR lower and the comp ratio steady.

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  • USTs edge down before the data

  • JPM Q1 beats: FICC flat yoy, VaR lower, comp ratio steady at 30%

  • Callables and Formosas: DB ZC

  • New issues


    USTs edge down before the data

    UST yields are 2-3bps higher ahead of a long list of data today led by retail sales (consensus is -0.4%), IP (+0.2%), UoM consumer sentiment (seen steady at 62.1) and UoM inflation expectations. Fedspeak includes Goolsbee and Waller.


    Swap spreads are mostly tighter led by front end with 2s at 0.25bps (-1.25), 5s at -21.75bps (-0.125), 10s at -30.25bps (-0.125) and 30s at -72.0bps (-0.125) with post-blackout FIG issuance awaited. So far, outright SOFR flows are below-average for a Friday except in 5y and the long end. Ahead, Barclays looks for further pressure on spreads at both ends of the curve, as it explains:


      “In light of the banking upheaval in March, increased scrutiny on banks’ AFS holdings could cause them to take a more precautionary stance, including curtailing lending and risk-taking and tightening their balance sheets, which would argue for tighter spreads.


      “Long-end spreads have tightened as balance sheet and liquidity conditions have worsened, and our VA proxy for hedging needs is also in receiving territory. Along with a bleak deficit outlook and the Treasury looking to increase coupon supply sooner than later, in our view, this is negative for spreads.”


    JPM Q1 beats: FICC flat yoy, VaR lower, comp ratio steady at 30%

    Nasdaq futures are 0.5% into the red but JP Morgan shares are up more than 5% in pre-open trading after the bank announced higher-than-expected revenue of $39.3bn for the first quarter, up 25%yoy, alongside wider margins and a jump in net income to $12.6bn, up 52%yoy. JPM's SLR rose to 5.9% and the CET1 ratio increased to 13.8%, which should help to keep the regulators happy.  


    CEO Jamie Dimon commented that while the US economy remains “generally healthy” and recent bank turmoil involved “far fewer financial players" and "fewer issues that need to be resolved” than in 2008,  financial conditions were still likely to “tighten” as lenders become “more conservative.” And “we do not know if this will slow consumer spending,” he concluded.


    JPM’s Q123 Fixed Income Markets revenue was $5.7bn, flat versus a year ago, reflecting “higher" revenue in Rates and Credit and "lower" revenue in Currencies & Emerging Markets”. Equity Markets revenue was $2.7bn, down 12%, against a strong first quarter in the prior year. 


    Market risk was mostly lower than in the previous quarter but up from a year ago. Average fixed income VaR (95%) was $56m in Q123 versus  $66m in Q422 and $47m in Q122. Average FX VaR was $10m, commodity VaR was $15m and equity VaR fell to just $7m.


    Finally, the comp ratio in JPM's corporate and investment bank was little-changed at 30% in the first quarter from 29% in Q422 and 30% a year earlier. ROE was 16% versus 12% in Q422 and 16% in Q122.  


    Callables and Formosas: ADB ZC

    • Asian Development Bank sold a $50m 20y NC5 zero coupon callable (non-Formosa). The GMTN matures Apr 2043, is callable annually from Apr 2028 and has an estimated IRR of 4.69%. Lead is JPM and announced Apr 14. 


    New issues

    • Diamond II (ReNew Energy Global) (Ba3/BB-) plans a $400m secured Green bond after meeting investors from Apr 14. Leads are Barclays, BNPP, DB, DBS, HSBC, JPM, Mizuho, MUFG, SMBC Nikko and StanChart.


    • 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.


    • JICA (A+) is preparing to meet investors from Apr 17 to discuss its Social/Sustainability bond framework. Leads are Daiwa, Barclays, Citi and MS.


    • American Honda Finance yesterday priced a $1.5bn 2-part ($800m 2y fixed and $700m 7y). Leads are BNPP, MUFG, SocGen and SMBC. A3/A-. +65bps and +115bps.