USD Swaps: PacWest, Western Alliance in the cross hairs

Chart line down Oct 2022
Two more regional banks see precipitous share drops and USTs are bull steepening. Swap spreads narrow. JPM welcomes the Treasury buyback facility.

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  • PacWest, Western Alliance in the cross hairs

  • Zero-coupon callables and Formosas

  • New issues


    PacWest, Western Alliance in the cross hairs

    Treasuries are rallying as two more regional banks – PacWest and Western Alliance – are circling the drain. The front end is leading the move with the 2y note yield down 7bps to 3.794% while the 10y note yield is last 3.334% or 3bps lower. PacWest and Western Alliance shares have been halted and are both down -59%. Equity indexes are sliding lower (DJIA -1.08%, S&P -0.97% and Nasdaq -0.43%).  


    Across the pond, the ECB hiked 25bps and ECB President Lagarde said in the presser “we have more ground to cover and we are not pausing.”


    Meanwhile, swap spreads are back in lower after widening post-FOMC, with front end spreads leading amid the underlying bull steepening.  IG new issuance is off the rails amid the unstable credit conditions and only one issuer has come thus far today.


    As underlying Treasury liquidity remains a continual issue, analysts at JP Morgan find that the Treasury yesterday has taken a “clear step from the February refunding discussion” in its announcement of regular buyback operations “for cash management and liquidity support purposes” starting in 2024.


    The Treasury outlines that the proposed liquidity facility will start at $60-$120bn in annual size and JP Morgan believes that while this initial sizing “could contribute to an improvement in liquidity,” it thinks “a facility of that size would not and should not be large enough to deal with episodes of acute market stress, such as March 2020, when the Federal Reserve stepped in.”


    Meanwhile the cash management facility initially would be set at up to $120bn per year. “In both instances, sizes are set to be reevaluated periodically, and we think Treasury should maintain flexibility to reduce and even suspend buybacks according to the evolution of liquidity conditions,” JP Morgan opines.


    For the complete Treasury presentation of “Treasury’s Current Views on Buybacks as a Policy Tool,” please see link


    2s -3.75bps (-1.625bps), 3s -13bps (-1.75bps), 5s -19bps (-1.375bps), 7s -25.25bps (-1.25bps), 10s -26.25bps (-1.625bps), 20s -61.375bps (-0.875bps), 30s -68.75bps (-1.5bps).



    Zero-coupon callables and Formosas


    • Natixis sold a $22m 10y NC5 fixed callable Formosa. The EMTN matures May 2033 and is callable annually starting May 2028 and pays a coupon of 5.2%. Leads Natixis, Shanghai Commercial and Taishin International. Announced May 2.  


    New issues  


    • Boston Properties is working on a $500m 10y Green. Leads BNYM, JPM, MS and WFC. Baa1/BBB+. Price talk +337.5bps area.


    • Blackstone buyout vehicle Copeland (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.