USD Swaps: Spreads tighter; SOFR view; GS FICC down but rates up

Goldman Sachs NY 30 Jan 2023
UST yields are lower and spreads are mostly tighter in early trading. Banks like selling June SOFR. GS reports lower FICC despite a rise in rates.

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  • Spreads tighter as USTs rally

  • Sell June 2023 SOFR?

  • GS FICC tumbles but rates up; BofA FICC jumps

  • New issues:  Kommuninvest, Ontario Teachers, EIB, ADB


    Spreads tighter as USTs rally

    Spreads are mostly tighter led by front end today against a backdrop of EIB-led SSA issuance, a 1-2bps fall in Treasury yields and 0.4% rise in S&P futures. Two-year swap spreads are 0.50bps (-1.00), 5s are -21.5bps (-0.50), 10s are -30.00bps (-0.50) and 30s are -71.25bps (unch). Still, SOFR IRS volumes are below-par except in the 5y bucket.


    In the news, the latest JP Morgan Treasury survey said that that a rise in longs pulled the net balance to 0% in the week to April 17 from -6% in the previous week, although the ‘Active clients’ net short balance was unchanged at a bearish -22%.    


    Sell June 2023 SOFR?

    Macro strategists at Barclays like the risk-return profile of selling SOFR for June 2023 with the future currently a tick firmer at 94.93 (5.07% implied) versus the 4.80% SOFR fix, after falling 10.5 ticks on Friday and 4.5 ticks yesterday. The bank explains:


      “June SOFR seems extremely rich right now, priced for a 25bp…The Fed has a history of not surprising markets; we do not see the May hike being derailed. But that also means markets assign a near-zero chance of a Fed hike in June.


      “This should re-price higher after May…Could the Fed actually cut in June (5 weeks after a May hike), which would hurt our view? Very unlikely in our view – only in a major financial crisis that sharply drags down broader risk assets.”


    And what is the near term outlook risk assets? Barclays again:


      “Admittedly, there are the first signs that the US labour market is losing steam. We expect a US recession in the second half, but also that the Fed won’t try to head it off. FOMC minutes make clear that the Fed still believe inflation is the big problem…Non-US growth data have kept surprising to the upside. And (discount window + BTFP) numbers suggest that US bank deposit flight is at least slowing.


      “Equity markets never bought into the bond markets’ doom and gloom from mid-March. We have felt that stocks were ‘less wrong’ than bonds; we still feel so But valuations + market repricing Fed dovishness should prevent stocks from ‘running away’. Meanwhile, concerns of an incoming ‘credit crunch’ + softer data should cap the 2y selling off. In other words, both bonds and stocks are likely to be stuck in limbo, perhaps until the Fed meeting.”


    GS FICC tumbles but rates up; BofA FICC jumps

    Goldman Sachs today said that revenues in FICC fell by 17%yoy to $3.9bn in the first quarter of 2023 despite significantly higher revenues in interest rate products, and higher revenues in mortgages and credit. The drop was driven by significantly lower revenues in currencies and commodities, while revenues in FICC financing were slightly higher.


    In contrast, BofA earlier today reported a strong 27% rise in FICC revenue during the first quarter to $3.4bn on the back of an improved performance across mortgage, credit, municipal products, and increased secured financing activity for clients. BofA’s average cross-asset VaR (99%) rose to $109m from $79m a year earlier.  


    JP Morgan last week said that its first quarter Fixed Income Markets revenue was flat versus a year earlier at $5.7bn reflecting “higher revenue in Rates and Credit and lower revenue in Currencies & Emerging Markets”.


    And Citigroup reported Fixed Income Markets revenues of $4.5bn for Q1 2023, up 4% on the year driven by strength in rates and currencies, “partially offset” by lower revenues in spread products / other fixed income.


    Last up, Morgan Stanley reports its results for the first quarter on Wednesday.  


    New issues: Kommuninvest, Ontario Teachers, EIB, ADB

    • Kommuninvest plans a $1bn short 3y in the area of swaps +30bps. Leads are Barclays, CACIB, Danske and Nomura. 


    • Sumitomo Mitsui Finance & Leasing (a-) is preparing a USD 5y at around Treasuries +200bps. Leads are BofA, Citi and SMBC Nikko (B&D).


    • Ontario Teachers’ Finance Trust plans a USD 5y via BofA, Citi, NBC and RBC. Aa1/AA+.  Swaps +78bps.


    • The EIB has launched a $4bn 7y Global at swaps +39bps. Leads are Barclays, JPM (B&D) and MS.


    • Asian Development Bank is preparing a USD 5y Global via BofA, BMO, BNPP and HSBC. Swaps +36bps.


    • Japan Bank for International Cooperation (JBIC) plans a USD 3y Global at swaps +47bps. Leads are Barclays, BofA, Citi and Nomura (B&D). A1/A+.


    • China’s New Development Bank (AA+/AA) is preparing a USD 3y Green in the region of swaps +140bps. Leads are Citi, CA, HSBC and ICBC.


    • CK Hutchison (A2/A) plans USD 5y and 10y bonds at around Treasuries +145 and 170bps. Leads are BofA, Barclays, BNPP, HSBC, JPM, Mizuho and StanChart.


    • Pertamina Geothermal (Baa3) has mandated, ANZ, BNPP, Citi, HSBC, Mandiri, MUFG, SMBC and UOB to lead a USD Green Bond issue following investor calls starting Apr 18.


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