USD Swaps: 10y sidles back to 3.50%; Thin conditions

Line chart 25 Mar 2021
At the close, the 10y yield is back down to 3.50%. Swap spreads saw minor moves as IG priced $6.6bn - with $4.75bn from Canadian FIGs.

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  • 10y sidles back to 3.50%; Thin conditions

  • New issues


    10y sidles back to 3.50%; Thin conditions   

    Treasuries traded mostly sideways this afternoon, but yields then saw another leg lower late with yields last around 5.5 to 8bps lower on the day. Earlier equity weakness mostly subsided with minor losses /gains into the close (DJIA +0.2%, S&P +0.09% and Nasdaq -0.29%). The 10y note yield is last 3.50% or 6.8bps lower on the day while 2s10s is last 1.5bps flatter at -63bps and 5s30s 1.6bps steeper at 13bps.


    Overall, sources see price action on the thin side to start the week and swap volumes are well below average. One source suggested that the currently challenges in liquidity are likely in part due to the aftermath of last month’s very "gappy" and "damaging" price action, and in general found that “people are not taking a stand” in terms of positioning or conviction. Thus, the market is free to push around on whatever flows do come through.


    In IG new issuance today, RBC launched a $2.5bn 2-part while CIBC came with a $2.25bn 2-part. In total IG new issues saw $6.6bn across four issuers. Elsewhere, in terms of spread outlook, analysts at JP Morgan continue to favor wideners in the front end, seeing them as “narrow to fair value.” On the other hand, the bank finds “spreads in the belly as wide to fair value, and likely to narrow in the weeks ahead,” such as the 7y. 


    And with bank demand for USTs stemming from deposit growth as one of the factors in the bank’s model for benchmark swap spreads, JP Morgan sees a lack of demand for USTs weighing on swap spreads and thus sees them narrowing ahead. To be sure, “in the current environment, characterized by YTD deposit losses and a flat outlook at best for deposits over the remainder of the year, we estimate that bank demand for USTs has turned negative,” it finds. Thus, “this persistent absence of demand for USTs from banks will likely weigh on swap spreads and bias them narrower going forward,” JP Morgan says.  


    As for UST refunding this week, tomorrow commences UST refunding with $42bn 2y, followed by $43bn 5y on Wednesday and $35bn 7y on Thursday.


    2s -1.25bps (unch), 3s -10.375bps (+0.625bps), 5s -21bps (unch), 7s -28.5bps (+0.125bps), 10s -28.875bps (-0.125bps), 20s -63.5bps (+0.25bps), 30s -69.375bps (+0.125bps).



    New issues  

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


    • Italian government agency CDP (BBB/BBB) plans a USD 3y to 5y bond. Via BNPP, BofA, Citi, GS, HSBC, IMI-Intesa Sanpaolo, JPM, MS and SocGen.


    • Sasol Financing has mandated BofA, Citi, SMBC, IMI, JPM, Mizuho, MUFG, SMBC and Standard Chartered to lead a USD benchmark 6y bond issue pending investor calls.


    • BOC Aviation plans a USD-denominated, 10y bond issue via BOC International, Citi, DBS, HSBC and JPM. 


    • SMBC Aviation Capital plans a USD bond issue via Citi, Credit Agricole, Goldman, JPM, RBC and SMBC.


    • CIBC launched a $2.25bn 2-part ($1.25bn 2y and $1bn 5y). Leads BofA, CIBC, JPM, MS and UBS. A2/A-/AA-.  +103bps and +142bps. It dropped plans for a 2y FRN.


    • Royal Bank of Canada priced a $2.5bn 2-part ($1.6bn 2y and $900m 10y). Leads RBCCM, GS, Lloyds, TSI, Citi and ANZ. +85bps and +152bps. It dropped plans for a 2y FRN.


    • nVent Finance Sarl priced a $500m 10y. Leads BofA, Citi and JPM. BBB-/BBB. +218bps.


    • Crown Castle priced a $1.35bn 2-part ($600m long 5y and $750m 10y). Leads Barclays, BofA, BNS, CACIB, MS and SocGen. Baa3/BBB/BBB+. +125bps and +160bps.