USD Swaps: 25bps hike solidifying; Back to bear flattening

Prices chart 11 Oct 2021
The front end USTs are leading a pivot back lower after stronger bank earnings and mixed data. Citigroup and Wells Fargo beat estimates.

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  • 25bps May hike solidifying; Back to bear flattening  

  • Citi FICC boosts; Wells Fargo beats estimates

  • New issues


    25bps May hike solidifying; Back to bear flattening

    Treasuries have bear flattened and the market priced increased probability of a 25bps hike in May after a slew of economic data and solid bank earnings. The 2y note yield is 13.5bps higher at 4.112% while the 10y 7.9bps higher at 3.524%. 2s10s is 6.4bps lower at -59.4bps while 5s30s is 5.6bps lower at 13.1bps, thus taking back some (5s30s) or all (2s10s) recent steepening gains. Equities are down (DJIA -0.62%, S&P -0.33% and Nasdaq -0.72%). Futures are now pricing a 25bps hike at 81.9% versus 66.5% yesterday. TIPS BEs are seeing gains, with the front end and 5y up around 5bps. 


    As for the data, weaker retail sales (-1%/ex-auto -0.8%) and import/export prices (-0.6% mom/-0.3%) were offset by higher IP/CapU (0.4%/79.8%), UofM sentiment (63.5) and UofM 1y inflation expectations (4.6%). Overall, the Citigroup Economic Surprise Index rose 9% to 31 after the data today.


    Bank earnings were solid across the first three banks to announce Q1 2023 earnings - JP Morgan, Citigroup and Wells Fargo (see below for more). “The credit crunch may be overblown and fears seem to be abated,” considered one source. Meanwhile, swap spreads are narrowing in the front end versus some widening in the belly amid volumes mixed best seen in the front end and the 10y. IG new issuance ends the week with $10.95bn - or slightly under the mid-estimate of around $12.5bn, sources note. 


    2s +0.5bps (-1bps), 3s -11bps (-0.75bps), 5s -21.75bps (-0.125bps), 7s -29.25bps (+0.25bps), 10s -29.75bps (+0.375bps), 20s -64.375bps (unch), 30s -71.625bps (+0.25bps).



    Citi FICC boosts; Wells Fargo beats estimates

    Citigroup FICC sales and trading revenue boosted Citigroup Q1 earnings as the division beat estimates at $4.45bn versus expected $4.02bn. Meanwhile equities sales and trading revenue dropped to $1.15bn, -25% yoy, versus estimate $1.25bn. Investment banking revenue came at $774m, also a -25% yoy, and lower than the estimate of $763.6m. Overall, total revenue rose 12% to $21.45bn versus $19.19bn a year earlier. Net income was 7.0% higher yoy at $4.61bn from $4.31bn.


    "Citi delivered strong operating performance, showing good revenue growth and expense discipline despite the tumultuous environment for banks. Our robust and well managed balance sheet was a source of strength for our clients and we continue making progress in executing our strategy focused on our five core interconnected businesses while simplifying and transforming the firm," Citigroup CEO Jane Foster stated.


    Wells Fargo also beat estimates, earning $5bn, or $1.23 per share, beating analyst projections by 10c/share.  Wells Fargo’s profit rose 32% yoy. Revenue of $20.73bnbeat estimate of $20.03bn. Commercial banking revenue rose 42% yoy to $3.31bn, corporate and investment banking revenue was 41% higher yoy at $4.90bn – both beat estimates.


    Next week, Bank of America and Goldman Sachs report on Tuesday April 18th, and Morgan Stanley on Wednesday April 19th.  For recap of Q1 2023 earnings from JP Morgan, please see Total Derivatives.



    Zero-coupon callables


    • DZ Bank sold a $50m 20y NC5 zero coupon callable (non-Formosa). The GMTN matures Apr 2043, is callable every year from Apr 2028 and has an estimated IRR of 4.89%. Self-led. 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.