USD Swaps: Flatter after ADP; Fed, X-date view

Fed building 25 Mar 2021
Treasuries remain flatter after paring gains following the strong ADP print. Ahead, banks mull the Fed and the X-Date.

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  • Flatter after strong ADP jobs

  • New issues


    Flatter after strong ADP jobs

    Treasuries have pared their gains but remain in the green beyond the front end after ADP jobs came in at 296K versus the 150K consensus, contradicting the signals sent by the JOLTS’ data yesterday. Still, the curve remains a tad flatter with the 2y at 3.96% (unch) versus the 30y at 3.69% (-2bps).


    Risk assets are also diverging in early trading ahead of ISM services data and the Fed. The Euro Stoxx (big) banks index is just in the green and the gain is led by Italian banks and BNPP after some good Q1 results. However, other European bank names are down. European IG CDS indices are tighter, S&P futures are +0.2%, and regional bank PACW is +1.0% in pre-market trading, but WAL is -1.0%. Helpfully, the energy complex is showing the greatest weakness with WTI futures two dollars lower and back under $70, while TIPS breakevens are 1-3bps tighter.   


    In swaps, with issuance on pause for Powell and EUR/USD basis unchanged at -23.25bps after falling 4bps yesterday on renewed bank/funding fears, spreads are mostly little-changed -2.00bps (-1.50) in 2y, -18.75bps (+0.25) in 5y, -26.00bps (unch) in 10y and -68.75bps (unch) in 30y.  SOFR flows are above average in 5y and 10y but below-normal elsewhere on the curve.  


    As the end of LIBOR draws near, Total Derivatives discusses the process of transitioning to SOFR with LCH SwapClear (link).  


    Closer in, with the FOMC decision looming, analysts at BNP Paribas update their views following the latest bout of bank jitters. The bank still looks for “one and done with a hawkish tilt”:


      “We expect the FOMC to maintain some optionality for additional tightening after they deliver what we project to be the last rate hike before a pause…There is little for the Fed to gain by forcefully committing to this being the last move.”


    Turning to the X-date, the latest readings from the Total Derivatives LinkedIn poll (link) show 21% in favour of June, a slim majority of 54% for July, 13% for August and 13% who reckon it’s impossible to say. However, the consensus may be shifting in the direction of an earlier deadline.


    As BNPP notes, investors yesterday priced in further June X-date premium in T-bills after Janet Yellen said on Monday that Treasury’s best estimate is that it will be “unable to continue to satisfy all of the government's obligations by early June" – and potentially as early as June 1st. The bank continues:


      “These numbers are subject to extreme variability which explains Yellen's uncertain tone. Moreover, Biden is not having discussions with McCarthy until 9 May. Congress also has very few days when all parties are scheduled to be in Washington from now until 1 June. This increases the probability of a short-term resolution and kicking the can into the second half of the year. We keep our base case that the Treasury will see a later X-date either from enough breathing room to get through 15 June and 30 June dates of expanded headroom or a temporary extension.”


    New issues

    • Blackstone buyout vehicleCopeland (Emerson Climate, Emerald Debt Merger) (Ba3/BB-/BB+) plans $2.25bn long 7y NC3 and $500m EUR equivalent long 7y NC3 secured bonds after investor calls starting May 3. Leads are Barclays (B&D), BofA, BNPP, CIBC, FITB, GS, HSBC, JPM, Mizuho, MUFG, REGSOL, RBC, Scotia, SMBC, TorDom, TSI, USB and WFS.


    • Korea Credit Guarantee Fund (Aa2/AA) is preparing a USD 3y Social bond through BNPP after meeting investors from May 8.


    • Glencore (Baa1/BBB+) yesterday priced $500m 5y and $500m 10y bonds through DBS, HSBC,JPM,MS and Santander. Treasuries +195 and 230bps, respectively.


    • Tenet Healthcare (B1/BB-) yesterday priced $1.35bn in 8y NC3 senior secured notes at 6.75%. Leads are Barclays, BofA, CAPONE, Citi, DB, FT, GS, JPM, MS, RBC, Santander, Truist and WFS.