USD Swaps: USTs mixed as debt ceiling eyed; 3y auction preview

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USTs mixed as debt ceiling eyed; 3y auction preview

Despite serving as a political pawn as the U.S. barrels towards default, the ‘markets’ seem relatively well-behaved this session (Dow -0.06%, S&P -0.42%, Nasdaq -0.44%) as President Biden and Congressional leaders meet today to start working on a resolution for the debt ceiling – one that increasingly looks like a ‘kick the can down the road’ with a short-term debt limit extension. 

Against this backdrop, Treasuries are currently mixed but little changed (+/- 1bps) after relinquishing earlier gains. The benchmark 10y note yield is last 0.2bps lower at 3.505% after a brief test of 3.47% in the morning trade. On the curve, the 2s10s spread is 1.5bps narrower at -51.25bps while the 5s30s spread is 0.4bps wider at 33.3bps.   

In the backdrop, a few IG names have popped up on today’s new issue docket, but some syndicate desks have hit the pause button on a few deals today as credit condition remain on shaky ground, sources report  Indeed, regional bank stocks remain a thorn in the markets’ side with PacWest off 4.5% today while Western Alliance is off 2%.

In SOFR-space, red SOFR futures are 0.5 to 2 ticks firmer while SOFR swaps spreads are offered across the board amid mixed activity across the curve but below average volumes overall. 

Ahead, Treasury will jump start this week’s refunding with today’s $40bn 3-year note auction at 1pm, unchanged in size from last month.  Heading into the supply, strategists at JP Morgan believe that the auction should be taken down without much issue, highlighting the following:

”…The April 3-year auction cleared 0.1bp cheap to pre-auction levels as end-user demand ticked down slightly from its record high of 83.2% to 82.3% . More granularly, investment manager takedown rose to 64.0%, the highest share since November, while foreign allotment decreased 5.6%-pts to 16.9%.

 

“…Since the last auction, 3-year yields have traded a relatively wide 50bp range, against the opposing forces of banking concerns and resilient labor market data. On net, 3-year yields have declined 9bp since the April auction, but rose 27bp over the last two sessions and are back above the levels that prevailed prior to last week’s FOMC meeting. The roll opened up at -3.5bp, in line with our expectations, and cheapened to -3.1bp since then.

 

“…In the current environment, we think markets remain asymmetrically focused on downside risks, and both debt ceiling and bank sector concerns should keep end-user demand elevated.

 

“…From a relative value perspective, the sector appears fairly valued on the curve after adjusting for the level of rates and the shape of the curve. Against this backdrop, we think (today's) auction should be digested smoothly, especially given the back up to higher yields over the last two sessions.”

Currently, SOFR swaps – 2s -7bps -1.75bps, 3s -15bps (-0.625bps), 5s -19.875bps (-0.375bps), 7s -26.25bps (-0.25bps), 10s -27.75bps (-0.375bps), 20s -64.25bps (-0.125bps), 30s -71.875bps (-0.375bps).

New issues

• Entergy Mississippi is working on a $300m 10y FMB deal via Citi, MUFG and WFS.  A2/A.  Price talk: +175bps area.

   

• Estee Lauder is working on a 5y, 10y and 30y via  BOFA, CITI and JPM.  A1/A+.  Price talk: +120bps area, +150bps area, +170bps area. 

   

• BP Capital Markets America is working on a 10y benchmark via BBVA, CA-CIB, DB, JPM, MS and MUFG.  Price talk: +160bps area.

   

• Conoco is working on a 30y benchmark via JPM, SMBC, TD and WFS.  A2/A-/A.  Price talk: +175bps area.

   

• Export-Import Bank of China (A1/A+) plans a $1.5bn 3y at Treasuries +35bps. Leads are BoC, Bank of Comms, Barclays, CITIC, CA (B&D), HSBC, ICBC and MUFG.   

   

• Singapore’s Bayfront Infrastructure (Aaa/AAA) is preparing a USD 3y at Treasuries +55bps via HSBC and StanChart.