USD Swaps: Heavy corporate issuance; Spreads in

Candle chart 1 Jun 2021
USTs sold off amid a heavy corporate issuance Monday, the second in a row. Swap spreads tightened. SLOOS shows tighter standards, weaker demand.

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  • Heavy corporate issuance; Spreads in

  • April SLOOS shows tighter standards and weaker loan demand  

  • New issues


    Heavy corporate issuance; Spreads in

    $22.55bn in corporate issuance headlined Monday’s IG business, with jumbo deals seen from Merck ($6bn 6-part) and Apple ($5.25bn 5-part). Coincidentally, the amount of IG supply nearly matched last Monday’s haul. Treasuries were sold to make room for the duration-heavy supply, sources suggest. The 10y note yield is last 8.4bps higher on the day at 3.52% while 2s10s is last 1.4bps flatter at -49.5bps and 5s30s near unchanged at 34bps.


    Equities ended mixed (DJIA -0.17%, S&P 0.04%, Nasdaq +0.18%). Regional banks PacWest and Western Alliance shares saw small gains (3.39% and 0.41%, respectively). Meanwhile, reflecting on the price action last week, one trader questioned "What is the systemic risk of regional banks?” The source noted “In the GFC, you had the largest institutional banks in trouble and that is systemic risk,” with the entire banking apparatus in trouble…whereas this time, with the regional banks, you are taking out “the bad actors and management” and “no one is bailing them out.” Thus, the source considered that the contagion risk was relatively low, but added that the knee-jerk headline risks still are potent as far as daily rate moves.


    Swap spreads started the day tighter and remained lower throughout the session amid heavier volumes in the belly and back end of the curve. Aside from the jumbo issuance in IG from Apple and Merck, a total of eleven issuers priced today. Ahead, in Treasury supply, tomorrow sees the $40bn 3y note auction, followed by $35bn 10y Wednesday and $21bn 30y Thursday.  


    2s -5.5bps (-2bps), 3s -14.25bps (-0.25bps), 5s -19.5bps (-1bps), 7s -26bps (-1.25bps), 10s -27.5bps (-1.125bps), 20s -64.125bps (-1.75bps), 30s -71.5bps (-1.625bps).



    April SLOOS shows tighter standards and weaker loan demand

    The widely anticipated SLOOS (Senior Loan Officer Opinion Survey on Bank Lending Practices) for April-  reflecting Q1 2023 and released today - found that “regarding loans to businesses, survey respondents reported, on balance, tighter standards and weaker demand for commercial and industrial (C&I) loans to large and middle market firms as well as small firms over the first quarter. Meanwhile, banks reported tighter standards and weaker demand for all commercial real estate (CRE) loan categories.”


    “For loans to households, banks reported that lending standards tightened across all categories of residential real estate (RRE) loans other than government-sponsored enterprise (GSE)-eligible and government residential mortgages, which remained basically unchanged. Meanwhile, demand weakened for all RRE loan categories. In addition, banks reported tighter standards and weaker demand for home equity lines of credit (HELOCs). Standards tightened for all consumer loan categories; demand weakened for auto and other consumer loans, while it remained basically unchanged for credit cards.”


    The April SLOOS included three sets of special questions, which inquired about banks' changes in lending policies for CRE loans over the past year; about the reasons why banks changed standards for all loan categories over the first quarter; and about banks' expectations for changes in lending standards over the remainder of 2023 and reasons for these changes.


    In response to the first set of special questions, “banks, on balance, reported tightening lending policies for all categories of CRE loans over the past year, with the most frequently reported changes pertaining to wider spreads of loan rates over banks' cost of funds and lower loan-to-value ratios.”


    Regarding the second set of special questions about reasons for changing standards on all loan categories in the first quarter, “banks cited a less favorable or more uncertain economic outlook, reduced tolerance for risk, deterioration in collateral values, and concerns about banks' funding costs and liquidity positions.”


    Finally, regarding the last set of special questions about banks' outlook for lending standards over the remainder of 2023, “banks reported expecting to tighten standards across all loan categories. Banks most frequently cited an expected deterioration in the credit quality of their loan portfolios and in customers' collateral values, a reduction in risk tolerance, and concerns about bank funding costs, bank liquidity position, and deposit outflows as reasons for expecting to tighten lending standards over the rest of 2023.”



    New issues  

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


    • Merck & Co launched a $6bn 6-part ($500m 5y, $750m 7y, $1.5bn 10y , $750m 21y, $1.5bn 30y and $1bn 40y). Leads BNPP, Citi, JPM and MS. A1/A+. +57bps, +82bps, +100bps, +102bps, +120bps and +135bps.


    • Oncor Electric Delivery launched a $1bn 2-part ($600m 5y and $400m reopening of its 4.95% Sep 2052). Leads Citi, JPM, TD and USB. A2/A+. +85bps and +145bps.  


    • T-Mobile priced a $3.5bn 3-part ($900m 5y, $1.35bn reopening of its 5.05% Jul 2033 and $1.25bn 30y). Leads Barclays, Citi, GS and JPM. Baa2/BBB-/BBB+. +135bps, +173bps and +195bps.


    • Apple priced a $5.25bn 5-part ($1bn 3y NC1, $1.5bn 5y, $500m 7y, $1bn 10y and $1.25bn 30y). Leads Barclays, JPM and GS. Aaa/AA+. +70bps, +55bps, +70bps, +80bps and +108bps.


    • Bell Canada priced a $850m 10y. Leads BMO, Citi, TD and WFS. Baa1/BBB+. +160bps. It dropped plans for a 3y NC1.  


    • Caterpillar Financial priced a $1.25bn 3y fixed. Leads Barclays, JPM, SocGen. A2/A/A.  +65bps. It dropped plans for a 3y FRN.  


    • Eversource priced a $1.8bn 3-part ($450m 3y, $550m reopening of its 5.45% Mar 2028 and $800m 10y). Leads BNY Mellon, Barclays, Citi, GS, Key Bank, PNC and USB on 3y. Leads Barclays, Citi, GS, Mizuho, MS, RBCCM, TD on 5y reopening. Leads BofA, Barclays, Citi, GS, JPM, MUFG and WFS and 10y. Baa1/BBB+/BBB+. +105bps, +130bps and +162.5bps.


    • DTE Energy priced a $800m 5y. Leads Barclays, JPM, Mizuho, MS and WFC. Baa2/BBB/BBB. +140bps.


    • Baltimore Gas & Electric priced a $700m 30y. Leads MUFG, BNPP, CACIB, Scotia.  A3/A/A.  +158bps.


    • Schlumberger Investment priced a $1bn 2-part ($500m 5y and $500m 10y). Leads BofA, DB and MUFG. A2/A. +105bps and +135bps.  


    • Ohio Power priced a $400m 10y. Leads CACIB, MUFG, SMBC. Baa1/A-/A. +155bps.