USD Swaps: USTs pare gains; HSBC; FOMC outlook

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USTs are in the green despite paring early gains while spreads are mostly tighter as more pre-Fed deals arrive. Banks preview the FOMC.

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  • USTs pare gains; BofA FOMC outlook

  • New issues: Barclays, Glencore


    USTs pare gains; BofA FOMC outlook

    Treasuries are in the green today led by the belly ahead of JOLTS and factory orders data, as the impact of yesterday’s triple-whammy of First Republic's sale to JPM, ISM prices and heavy IG supply (see Total Derivatives) faded. 5y Treasuries are 3.62% (-2bps) and stock futures are edging into the red, while last minute pre-Fed issuance has arrived from Barclays, Glencore and Tenet.    


    With new deals still landing, swap spreads are modestly tighter at -0.125bp (-0.50) in 2y, -19.25bps (-0.25) in 5y, -26.25bps (-0.50) in 10y and -69.50bps (-0.25) in 30y.  Swap volumes are above average from 5y out to 30y, but strongest in the 10y bucket.


    In the news, HSBC shares are up 5.6% after the bank reported higher than expected Q1 profit of $12.9bn, which included a tidy $1.5bn from picking up the UK operations of SVB. In the investment bank, ‘Global debt markets’ revenue jumped 78% to $350m and FX revenue rose 20% to $1.22bn.   


    After a hawkish RBA rate hike earlier today SOFR futures are 0-3 ticks softer and just off session lows in the whites and 1-2 ticks firmer in the reds and greens as the strip flattens before the Fed with Jun23 at 5.145% implied and Dec23 at 4.54%.


    Strategists at BofA look ahead to the FOMC, with the bank expecting a 25bps increase in the Fed funds target to 5.0-5.25%. However, although BofA reckons this month's hike will be the last in the cycle, it also expects the Fed to send the message that while it believes monetary policy is “in the vicinity" of being sufficiently restrictive, further rate hikes "cannot be fully ruled out.” BofA continues:


      “Further hikes are possible but face a higher hurdle given cracks in the banking system. At present, the market prices only 6bps of hike at the June FOMC meeting. We think 5-7bps of hike in June seems fair with current data.


      “The FOMC statement is likely to say, ‘some additional policy firming may yet be appropriate.’ This would send the signal that the committee will keep its options open after the May meeting should incoming data suggest further tightening is required. A hike in June cannot be ruled out given that the Fed will see two employment reports and another inflation report between the May and June FOMC meetings.


      “If inter-meeting data is 50/50 hike vs. hold, the tie now goes to the hold. Even if data is 60/40 hike vs. hold, the Fed will likely hold. If data is 80/20, then hike. Again, onus is on data to disprove the hold.”


      “The market continues to speculate on the possibility of a reduction in the Fed ON RRP rate or maximum cap. We believe any ON RRP rate or cap reduction is unwarranted & unnecessary given current money market dynamics. It has also not been seriously discussed by Fed officials…We continue to believe it is more likely that the ON RRP per counterparty cap is raised and not lowered. This is especially true with debt limit concerns.”


    New issues

    • Barclays (Baa1/BBB) plans USD 4y NC3 and 11y NC10 bonds at around Treasuries +230 and 295bps. Self-led.


    • Glencore (Baa1/BBB+) is preparing USD 3y, 5y and 10y bonds through DBS, HSBC, JPM, MS and Santander. Seen at around Treasuries +165, 195 and 230bps, respectively.


    • Tenet Healthcare (B1/BB-) plans $1.35bn in 8y NC3 senior secured notes. Leads are Barclays, BofA, CAPONE, Citi, DB, FT, GS, JPM, MS, RBC, Santander, Truist and WFS.


    • SK On (Aa3) plans a $900m 3y Green bond guaranteed by Kookmin at Treasuries +155bps. Leads are BNPP, CA, HSBC (B&D), JPM, MUFG and StanChart.