USD Swaps: USTs stick to bottom of day’s range; Wells Fargo taps

Chart lines Oct 2022
USTs bounced along the bottom end of the day's range with yields 7-9bps higher on the day. WFC came with a $3.75bn 11y NC10. BofA and GS report ahead.

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  • USTs stick to bottom of day’s range; Wells Fargo taps   

  • New issues


    USTs stick to bottom of day’s range; Wells Fargo taps    

    Treasuries stayed on the bottom end of the day’s range for much of the day with yields 7-9bps higher on the day. The 10y note yield is last 8.2bps higher in yield at 3.597% while 2s10s is near unchanged at -59.3bps and 5s30s -1.6bps flatter at 11.27bps. Equities ended with modest gains (DJIA +0.3%, S&P +0.21% and Nasdaq +0.28%). Meanwhile, futures now see a 88.7% probability of a 25bps hike in Mar, up from 72% a week ago.


    Swap spreads bounced off the lows of the day in amid low volumes after Wells Fargo launched a $3.75bn 11y NC10, with the deal pricing around 25bps tighter from initial price talk. In total, IG new issuance (ex-SSA) priced $7.85bn or already roughly half of what is expected for the entire week.  


    The Wells Fargo deal was the first FIG issuance to come post March banking crisis and comes on the heels of better Q1 earnings from Wells, Citi and JP Morgan (see link and link for earnings recap). Tomorrow Bank of America and Goldman Sachs release earnings, followed by Morgan Stanley Wednesday.


    As for spreads, in the front end of the swap spread curve, analysts at JP Morgan continue to think “spreads have room to widen as they look too narrow to fair value.” In addition to fair value considerations, the bank sees two other reasons for this view:


      ”First, MMF AUMs have continued to increase in April, albeit at a slower pace, and should keep RRP elevated given that the RRP is the most scalable marginal opportunity available to MMFs. As we have noted in the past, a higher RRP balance is supportive of wider front-end spreads. Second, our economists look for another 25bp hike in May, and higher front end yields are supportive of wider front end spreads as well.”


    JP Morgan favors expressing the view of wider front-end spreads via a 2s5s spread curve flattener: “2s/5s spread curve is well-correlated to 2-year swap spreads and currently looks mispriced by 2bp, and should flatten if 2-year spreads widen.” Additionally, JP Morgan is biased towards narrowers in the belly, which would also support a flattening of the 2s/5s spread curve.


    2s +1.25bps (unch), 3s -8.5bps (+1.75bps), 5s -21bps (+0.75bps), 7s -28.625bps (+0.75bps), 10s -29.5bps (+0.5bps), 20s -64bps (+0.75bps), 30s -71.25bps (+0.375bps).



    New issues

    For a complete review of issuance over the past week, please see USD New Issues.


    • Ontario Teachers’ Finance Trust plans a USD 5y bond. Leads BofA, Citi, NBC and RBC. Aa1/AA+. Price talk at around swaps +80bps. Expected Tuesday.


    • The EIB plans a USD 7y Global. Leads Barclays, JPM and MS. Aaa/AAA/AAA. Price talk mid swaps +41bps. Expected to price tomorrow.


    • Asian Development Bank plans a USD 5y Global BofA, BMO, BNPP and HSBC. Price talk at around swaps +38bps. Expected to price Tuesday.


    • Japan Bank for International Cooperation plans a USD 3y issue. Leads Barclays, BofA, Citi and Nomura (B&D). A1/A+. Price talk mid swaps +50bps. Expected to price tomorrow.


    • CK Hutchison plans a USD 5y and 10y bond issue via BofA, Barclays, BNPP, HSBC, JPM, Mizuho and Standard Chartered.


    • Jakarta-based Green energy company Pertamina Geothermal has mandated, ANZ, BNPP, Citi, HSBC, Mandiri, MUFG, SMBC and United Overseas Banks to lead a USD benchmark Green Bond issue following investor calls.


    • Wells Fargo launched a $3.75bn 11y NC10. Self-led. A1/BBB+/A+. +180bps.


    • Mars Inc. priced a $2.5bn 3-part ($1bn 5y, $500m 8y sust. and $1bn 10y). Leads BNPP, Citi, JPM and MS. A1/A. +87bps, +105bps, +117bps.


    • Cargill priced a $1.1bn 2-part ($600m long 3y and $500m 10y). Leads Barclays, BNPP, BofA and GS. A2/A/A. +65bps and +120bps.  


    • Kookmin Bank priced a $500m 5y. Leads BofA, Citi (B&D), HSBC, JPM, KDB and MUFJ. Aa3/A+. Price talk +95bps.


    • Abu Dhabi National Energy (Taqa) priced a $1.5bn 2-part ($500m long 5y and a $1bn  10y Green Bond). Leads BNPP, ENDB, FAB, HSBC, ICBC, IMI, Scotia, SMBC and Standard Chartered (B&D). Aa3/AA-. +80bps and +110bps.