USD Swaps: Flatter ahead of CPI

Flatter ahead of CPI

USTs are mixed and the curve is a touch flatter on the back of pre-data weakness at the front end and a small rally further out. SOFR futures are 1-3 ticks lower in the reds and the 10y Treasury is 3.50% (-2bps), with 5s/30s down to 32bps (-2bps). Risk assets are a touch softer with S&P futures -0.1% and the Euro Stoxx 50 -0.3%. In swaps, volumes are below average so far but of course CPI and a $35bn 10y auction lie ahead to stir things up. Spreads are mixed as issuance pauses with 2s at -7.50bps (-1.00), 5s at -19.75bps (+0.25), 10s at -27.75bps (+0.125) and 30s at -71.75bps (+0.25).    

In the news, the WSJ finds that Biden and McCarthy remained “at loggerheads” after their meeting yesterday, making “little progress” on the debt ceiling but setting plans for a new round of talks. The paper also runs a poll (conducted last month) which shows the public split 44% for and 45% against lifting the debt ceiling, rising to 75% against among Republican voters.

Oil prices are around 80 cents lower ahead of CPI and TIPS breakevens are a tad softer at the very front of the curve in early trading, but little-changed beyond 5y. The NSA CPI fixing “backtracked a bit” in recent sessions according to one dealer yesterday (see Total Derivatives) NSA traded a few times yesterday at 4.995% (303.55), 4.99846% (303.56) and last at 4.99154% (303.54) according to the SDR, all a tad above but pretty close to the 303.50 (4.97771%) Bloomberg survey consensus.

Meanwhile analysts at BNP Paribas preview the inflation data and look for “another month of discouraging CPI prints.” They explain:

“We think we could see a more benign trend begin to take shape in non-housing services - the most important inflation component for the Fed – but expect a rebound in used car prices to drive the strong headline and core prints. Fed officials will likely be wary in acknowledging progress on the inflation front, so as not to be caught off-sides by yet another false dawn. Policymakers will likely need to see several more months of sustained improvement before they begin softening their inflation assessment.

 

“In our view, a more material weakening in the labor market will be required to return non-housing services inflation – and inflation more broadly – back to target-consistent rates.”

Callables and Formosas

• Goldman Sachs sold a $55m 5y floating rate Formosa. The EMTN matures May 2028 and pays SOFR +130bps floored at 0%. Lead is Taishin and announced May 10.