USD Swaps: 3y strong; USTs, equities lower; 10y refunding eyed

Biden empathy 5 Oct 2020
The 3y came 3bps through but USTs still ended lower. Equities ended down ahead of debt ceiling discussions. Deutsche examines 10y auction take downs.

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  • 3y strong; USTs, equities lower; 10y refunding eyed

  • New issues


    3y strong; USTs, equities lower; 10y refunding eyed

    Treasuries are ending lower with yields 1.2 to 3bps higher on the day. Equities closed down (DJIA -0.17%, S&P -0.35% and Nasdaq -0.63%). PacWest (0.88%) and Western Alliance (-1.72%) ended off intraday highs. Meanwhile, ahead of the 4pm meeting at the White House, Senate minority leader McConnell called for Biden to negotiate with House Speaker McCarthy on spending cuts tied to raising debt ceiling. 


    As for Fed-speak, NY Fed President Williams in a Star Wars themed speech today saw core services excluding housing as “the most persistent area of inflation” and is “driven by a continued imbalance in overall supply and demand, and it will take the longest to bring down.” That said, Williams expected inflation to decline “to around 3.25% this year, before returning to our longer-run goal of 2% over the next two years.” Further in the Q&A, Williams did not see in his baseline forecast “any reason to cut rates this year.”


    Elsewhere, on the supply side, the $40bn 3y auction result was very strong, coming 3bps through the 1pm bid side, and drawing a rate of 3.695%. Indirects (73.3%) saw a new record high while the primary dealer allocation of 13% was a record low. On the corporate side, IG new issuance saw $4.9bn price across 4 issuers to bring the weekly total to $27.45bn.


    Swap spreads narrowed further, led by the front end of the curve amid volumes best seen in the belly of the curve from 5y to 10y maturities.  


    Looking ahead to tomorrow’s $35bn refunding 10y auction, analysts at Deutsche examine the relationship between auction tails and primary dealer takedown in recent 10y auctions (differentiated between refunding and reopening auctions) and the bank finds “all three of the strongest auctions since 2022 have been refunding auctions, stopping through by 3.1bps, 2.4bps, and 0.6bp.”


    “These auctions also featured the highest levels of indirect bidder participation in the specified time period, which more than made up for their below-average direct bidder participation (the lowest since 2022),” Deutsche points out.


    Deutsche finds that the recent elevated level of demand at refunding auctions compared to reopening auctions is “particularly relevant” given the charge released by the TBAC which explored “the potential upsides and drawbacks” of shifting 2y, 3y, 5y, and 7y notes “from a monthly issuance schedule to a quarterly one” and the suggested cadence, “with one refunding auction and two reopening auctions every quarter, is similar to the current schedule for longer-term Treasuries (albeit with different months for refunding auctions).”


    2s -6.75bps (-1.5bps), 3s -14.25bps (unch), 5s -20bps (-0.5bps), 7s -26.5bps (-0.5bps), 10s -28bps (-0.625bps), 20s -65bps (-0.875bps), 30s -72bps (-0.5bps).




    New issues  


    • Conoco priced a $1.1bn 30y benchmark. Leads JPM, SMBC, TD and WFS.  A2/A-/A.  +150bps.


    • Estee Lauder priced a $2bn 3-part ($700m 5y, $700m 10y and $600m 30y). Leads BOFA, CITI and JPM.  A1/A+.  +90bps, +115bps, +135bps.


    • BP Capital Markets America priced a $1.5bn long 10y benchmark via BBVA, CA-CIB, DB, JPM, MS and MUFG. +137.5bps.


    • Entergy Mississippi priced $300m 10y FMB deal via Citi, MUFG and WFS.  A2/A.   +148bps.


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


    • Singapore’s Bayfront Infrastructure (Aaa/AAA) priced a $500m 3y. Leads HSBC and StanChart. +55bps.