USD Swaps: Slightly steeper, tighter as S&P falls; 5y TIPS ahead
Slightly steeper, tighter as S&P slips; 5y TIPS ahead
Treasury yields are 2-3bps lower with the 5y at 3.67% (-3bps) shortly before initial claims and the Philly Fed index. In swaps, spreads are mostly tighter despite a lack of confirmed new issuance with 2s at 0.50bps (-0.50), 5s at -21.125bps (-0.25), 10s at -29.25bps (-0.125) and 30s at -70.25bps (unch). Swap volumes are below-par across the curve.
SOFR futures are off the highs but remain 6.5-8 ticks stronger in the reds with S&P futures 0.8% lower and after comments overnight by the NY Fed’s John Williams. Next up, Fed speakers on the slate for today include Waller, Mester, Bowman, Logan and Bostic.
Fresh research today includes BofA’s updated views on duration and the curve. The bank says that the market is expecting the Fed to shift to an "on-hold" stance after May and it finds that, historically, this has implied: “a constructive duration stance; a curve bias towards bull steepening; and lower vol.”
However, BofA adds that the “idiosyncrasies” of the current cycle (including “higher inflation, likely lower Fed commitment to on-hold guidance, a frontloaded bull steepening dynamic) suggest limits to the lessons from history. Hence BofA has a “conservative” target for 10y yields “consistent with a convergence back to the c.3% steady state, with the potential for a more significant richening (into mid-2% levels) contingent on harder landing scenarios.”
In inflation, TIPS breakevens are 1-5bps lower in early trading led by the front end against a backdrop of weaker risk assets and a fall in WTI futures to around $78 (-1.16). Ahead, Treasury will auction $21bn in new 5y TIPS today and while Barclays' inflation strategists see two-sided risks to the sale (see Total Derivatives), SocGen expects “decent demand” in light of “the April rise in oil prices, receding fears of an imminent banking crisis and relatively strong TIPS auctions so far this year.”
Callables and Formosas: Credit Agricole, DBS
- Credit Agricole sold a $70m 10y NC2 fixed callable Formosa. The EMTN matures May 2033, is callable annually from May 2025 and pays a 5.50% coupon. Self-led and announced April 20.
- Credit Agricole sold a $31m 10y NC5 fixed callable Formosa. The EMTN matures May 2033, is callable annually from May 2028 and pays a 5.08% coupon. Self-led and announced April 19.
- DBS sold a $50m 20y NC6 zero coupon callable (non-Formosa). The EMTN matures Apr 2043, is callable annually from Apr 2029 and has an estimated IRR of 4.90%. Lead unconfirmed and announced April 19.
New issues: JFM
- Japan Finance Organisation for Municipalities (JFM) (A1/A+) plans a USD 5y at swaps +81bps. Leads are Barclays, BofA (B&D), JPM and Nomura.
- Pertamina Geothermal (Baa3/BBB-) is working on a $400m 5y Green at 5.15% via ANZ (B&D), BNPP, Citi, HSBC, Mandiri, MUFG, SMBC Nikko and UOB.