USD Swaps: USTs mixed after data; Banks risk averse

Chart green 25 Mar 2021
USTs are a touch lower and steeper after mixed data and ahead of the Pfizer mega-deal. A couple of banks remain wary of risk assets.

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  • USTs mixed after data

  • Big picture risk aversion: Banks

  • Callables and Formosas: ING ZC

  • New issues: Pfizer


    USTs mixed after data

    Weaker-than-expected headline retail sales (+0.4% versus +0.8% expected) but firmer core sales, alongside a sharp drop in the latest from NY Fed's Services survey, left the Treasury curve a touch higher and steeper with the 30y at 3.87% (+2bps), while S&P futures were softer in the background. Next up, the market will get IP data for April (seen unchanged) plus another slug of Fedspeak from Barr, Williams, Goolsbee and Logan.


    Meanwhile with the Pfizer deal looming (plus a handful of swapped issues from EU and Japanese names on the slate – see below), swap spreads are modestly tighter with 2s at -9.50bps (+0.25), 5s at -21.50bps (-0.125), 10s at -29.50bps (-0.125) and 30s at -73.5bps (-0.25).    


    Big picture risk aversion: Banks

    A couple of banks have updated their near term cross-asset views over the last few days. First, JP Morgan is wary of risk assets, citing a number of reasons:


      “Credit markets are not sending a reassuring signal for risk assets as all-in financing costs keep rising, lending standards are tightening, demand for credit is falling aggressively, and US bankruptcy filings YTD are the highest since 2010.”


    Still, that’s not enough for the bank to go long duration and for now it prefers to overweight cash:


      ”Markets continue to price a more dovish Fed path and Treasuries look rich, but given ongoing regional bank concerns and a likely intensification of the debt ceiling debate, we stay neutral duration and keep 10s/30s steepeners as a medium-term bullish proxy.”


    It’s especially wary of the curve pricing a recession, something that could be “vulnerable to reassessment” given the mixed data backdrop:


      “Fed Funds policy priced by OIS markets is currently consistent with a recession. One way to visualize this is to realize that there are only two outcomes after the end of a hiking cycle i.e. recession or soft landing (1994 was the only episode since the late 80s). Comparing current OIS pricing to average behavior in these two scenarios reveals that the OIS market is much closer to the recession scenario.”


    And JP Morgan is looking for a rise in cross-asset volatility even as central bank tightening starts to end:


      ”Anticipation of an end to the hiking cycle has been a tailwind for sentiment over the past few months, but this is now likely fully priced in. With the dampening effect of policy now materially diminished, volatility is likely to increase with markets reacting more strongly to growth and corporate fundamentals.”


    Elsewhere, Barclays is similarly risk asset averse despite hearing some “encouraging rhetoric” from the US debt ceiling negotiations.


      “The headwinds to a continued risk rally have increased in recent days: The rise in household inflation expectations will worry both the Fed and the ECB; US bank stocks are struggling to find a bottom, and making new 2023 lows; here is no obvious quick fix to US banking problems, either


      “Stocks are near YTD highs, and US bonds are pricing cuts as early as July. In our view, this is an unsustainable equilibrium; we don’t see rate cuts in Q3 and feel stocks are very ‘full’. The only way the Fed will cut in Q3, in our view, is if the outlook is so bad that US equities collapse. Given our near-term outlook, we expect risk assets to underperform in coming days. We also recommend shorting the US front end, paired with forward-starting steepeners.”


    Callables and Formosas: ING ZC

    • ING Bank sold a $50m 20y NC7 zero coupon callable (non-Formosa). The EMTN matures May 2043, is callable from May 2030 and has an estimated IRR of 5.32%. Self-led and announced May 16.


    New issues: Pfizer

    • Pfizer has mandated BofA, Citi, Goldman and JPM to lead a multi-tranche $25-30bn (expected) bond issue in 2025, 2026, 2028, 2030, 2033, 2043, 2053 and 2063 maturities.


    • CADES plans a USD 5y Social at swaps +45bps. Leads are BNPP, Goldman, NatWest and SocGen. Aa2/AA. Books above $5bn .


    • Kommunekredit plans a $1bn 5y at around swaps +47bps. Leads are BMO, Daiwa, DB, RBC and SEB.


    • CoE Development Bank plans a USD 3y Social Global.  Leads are CA, MS, NatWest and Nomura. Swaps +24bps.


    • Japan International Cooperation Agency (JICA) plans a $1.25bn 5y Sustainable at swaps +76bps. Leads are Barclays, Citi, Daiwa and MS. A+


    • Tokyo plans a USD 3y to 5y through Barclays, Goldman, Citi and MS.


    • Singapore Tech Engineering (Aaa/AA+) plans a USD 3y at around Treasuries +60bps. Leads are JPM (B&D), DBS and StanChart.


    • Abu Dhabi real estate firm Aldar Investment (Baa1) is preparing a USD 10y Green Sukuk through ADCB, ADIB, DIB, ENBD, FADB, HSBC, Mashreq and StanChart after investor meetings from May 16.


    • Saudi Arabia plans USD 6y and 10y Sukuks at Treasuries +80 and 100bps respectively. Leads are Citi, JPM and StanChart. A1/A+.


    • BOC Aviation (A-) today priced a $500m 5y at Treasuries +120bps. Leads are BOC, Citi, HSBC (B&D), MS and MUFG.


    • Florida Power & Light yesterday priced a $2.5bn 4-part ($500m 3y, $750m 5y FMB, $500m 7y FMB and $750m 10y FMB). Leads are BBVA, BMO, BofA, JPM, RBCCM, Santander and Scotia. Aa2/A+/AA-. +80bps, +95bps, +115bps, +130bps.


    • PacificCorp yesterday priced a $1.2bn 31y Green FMB. Leads are BMO, PNC, SMBC, TD and WFC. A1/A+.  +165bps.


    • Allstate yesterday priced   $600m $25 par preferred. Leads are MS, BofA, JPM, Loop and WFS. Baa2/BBB. 7.375%.