USD Swaps: Bear-flattening; Brevan cuts short; MS rates up, FICC down

Chart 24 Nov 2021
Higher-than-expected UK inflation sparked global bear-flattening. Brevan cut its short after a tough month. MS reported higher rates but lower FICC.

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  • UK inflation beat sparks global bear-flattening

  • Brevan Howard Master Fund goes small long after big March drawdown

  • Morgan Stanley echoes peers with FICC down, rates up

  • Callables and Formosas: CA, Scotia

  • New issues: BofA, JFM, Canada, Kommuninvest


    UK inflation beat sparks global bear-flattening

    Treasuries are bear-flattening with the 2y UST yield backing up to 4.25% (+5bps) after testing 4.28% in early trading after global fixed income markets moved into the red after today’s UK inflation data, which printed 30bps above-consensus at 10.1%.


    In dollar swaps, spreads are narrowly mixed as BofA readies a self-led deal with 2s at 1.00bps (unch), 5s at -20.5bps (-0.125), 10s at -28.50bps (-0.125) and 30s at -69.75bps (unch). SOFR flows are modestly above-average at the long end ahead of today's $12bn 20y reopening. SOFR futures remain as much as 9 ticks lower in the reds ahead of the Fed’s Beige Book today and the Philly Fed and PMI surveys later in the week. Fedspeak includes Goolsbee today followed by Williams, Waller, Mester, Bowman and Bostic on Thursday.    


    Brevan Howard Master Fund goes small long after big March drawdown

    Brevan Howard’s BH Macro feeder fund was up 0.31% over the first two weeks of April but that gain still left the fund down 2.93% for the year to April 14th, after losing 3.22% in March.


    Similarly, the underlying $10.9bn Brevan Howard Master Fund lost as much as 4.22% last month which Bloomberg reports was, “its biggest ever monthly decline since launch in 2003”. Strangely enough, the same month also saw the Master Fund’s largest gain, when it jumped 18.32% in March 2020 as Covid swept the markets.


    Ten-year Treasury yields plunged by 45bps last month  as the curve bull-steepened on bank turmoil. But yields then rose by around 5bps over the first two weeks of April.


    Still, after losing 4.22% last month the Master Fund finished March 2023 slightly net DV01 long interest rates, having ended February modestly short. The fund was slightly long both the 3m and 10y+ buckets of the USD curve at the end of March, slightly short the long end of the JPY curve and broadly neutral everywhere else including EUR and GBP.


    Still, the Master Fund’s interest rate VaR (95%) was little-changed at $24.2m versus $26.1m at the end of February, and its interest rate vega exposure rose to 0.34% of NAV from 0.19%.


    Finally, across other asset classes, the fund trimmed its FX dollar long against Asian currencies but its FX VaR still rose sharply to $14.5m from $7.5m. The Master Fund stayed small short equities and small long commodities, credit and digital assets.    


    Morgan Stanley echoes peers with FICC down, rates up

    Elsewhere, Morgan Stanley beat consensus with total first quarter 2023 revenues of $14.5bn but its shares are down 4% in pre-market trading.


    Within the bank's Institutional Securities division, Fixed Income revenues fell 12% from a year ago to $2.6bn due to “declines in commodities and foreign exchange” as a result of “lower volatility and client activity.” The declines were “partially” offset by higher revenues in rates supported by “interest rate volatility across geographies”, and increased credit products revenues supported by “client engagement”.  


    Morgan Stanley's 12% drop in FICC compares with -17% for Goldman Sachs, +27% for BofA, flat for JP Morgan and +4% for Citigroup. Most of the banks – even those with negative growth in total FICC – reported gains for rates products. 


    Elsewhere, the bank's equity revenues of $2.7bn fell 14% compared to a strong prior year quarter. The decrease was due to “lower volumes and declines in global equity markets”. The comp ratio in Institutional Securities Iincluding investment rose slightly to an estimated 35% from 34% in Q1 2022. Average cross-asset trading VaR (95%) rose to $55m from $39m a year earlier


    Callables and Formosas: CA, Scotia

    • Credit Agricole sold a $50m 10y NC2 fixed callable Formosa. The EMTN matures May 2033,is callable annually from May 2025 and pays a 5.45% coupon. Self-led and announced April 17.


    • Bank of NovaScotia sold a $15m 10y NC4 floating callable Formosa. The EMTN matures May 2033 and is callable annually from May 2025. It pays USD 2y CMS + 160bps. Lead is KGI and announced April 17.


    New issues: BofA, JFM, Canada, Kommuninvest

    • Bank of America is preparing USD 6y NC5 and 11y NC10 fixed to floating rate bonds at around Treasuries +170 and 190bps. Self-led.   


    • Japan Finance Organisation for Municipalities (JFM) (A1/A+) plans a USD  5y in the area of swaps +81bps. Leads are Barclays, BofA (B&D), JPM and Nomura.


    • Canada is working on a 5y Global at Treasuries +11bps via Barclays, BofA, CIBC, RBC and TD (B&D).


    • Kommuninvest plans a $1bn short 3y at swaps +27bps. Leads are Barclays, CA, Danske and Nomura.


    • China’s New Development Bank (AA+/AA) is preparing a $1.25bn 3y Green bond at swaps +125bps. Leads are Citi, CA, HSBC and ICBC.


    • Altice USA (B1/B) yesterday priced a $1bn 5y NC2 11.245% unsecured via GS, MS, Barclays, BNPP, BofA, Citi, CA, CS, DB, JPOM, RBC, Scotia, TD and WFS.


    • Sumitomo Mitsui Finance & Leasing (A-) yesterday priced a $500m 5y at Treasuries +170bps. Leads are BofA, Citi and SMBC Nikko (B&D).


    • CK Hutchinson yesterday priced a $1.25bn 5y and a $1.15bn 10y. Leads are BofA, Barclays, BNPP, HSBC (B&D), JPM, Mizuho and StanChart. A2/A/A-. +110bps and +135bps.


    • Japan Bank for International Cooperation (JBIC) yesterday priced a $2.5bn 3y Global at swaps +47bps. Leads are Barclays, BofA, Citi and Nomura (B&D). A1/A+.