USD Swaps: Pfizer weighs on USTs; Banking system money map

Bond chart 30 Jan 2023
Amid a mixed risk backdrop, USTs are under pressure as Pfizer’s $24-$30bn mega hangs over the market. BofA sees stress in banking system.

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  • Pfizer weighs on USTs; Banking system money map

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    Pfizer weighs on USTs; Banking system money map

    Another dire warning from Treasury Secretary Yellen that “time is running out” to avoid utter economic calamity if the debt ceiling isn’t raised along with a bleaker earnings outlook from retail darling Home Depot have served as the backdrop to today’s mixed trade in the major domestic equities (Dow -0.68%, S&P -0.35%, Nasdaq +0.11%).


    Meanwhile, in rate-space, with today’s data out of the way, Treasuries have come under  pressure with the weight of Pfizer’s $25-30bn multi-tranche deal hanging over the market, sources report.  The benchmark 10y note yield is last 5.8bps higher at 3.56% while the 2s10s spread is 1bps narrower at -52.1bps as the front-end lags today. 


    Meanwhile, in SOFR-space, red SOFR futures are off 8 to 10.5ticks while SOFR swap spreads remain mostly lightly offered amid below-average activity overall as the Pfizer deal  (plus a handful of swapped deals like CADES, Kommunekredit, CoE Development Bank and JICA) still loo in the wings.


    Elsewhere, while debt ceiling concerns have been thrust into the forefront for the broader financial landscape, banking concerns continue to quietly percolate in the backdrop.  And while regional names like PacWest and Western Alliance have been on firmer footing of late as stand-alone banks, strategists at BofA find that stresses still remain in the broader banking system in their latest real-time assessment of how funds are flowing in the system using daily and weekly data across FHLBs, MMFG, and the Fed:


      ”…Key takeaway: Banking system stress remains elevated, though the rate of increase in funding need has slowed. FHLB debt issuance has continued to pick up despite bank reserves increasing, ON RRP take-up declining, and recent MMF outflows. The recent pickup in Fed funds volumes may imply FHLB has excess cash to lend in Fed funds market.


      “…FHLB activity: According to our estimates, FHLB net issuance has picked up $26b in the last week, averaging ~$5b/day. Positive net issuance typically implies banks are demanding funding from FHLBs. However, Fed funds volumes have also picked up recently despite no change in the rate, implying FHLBs may be building up more of a cash buffer and lending out excess cash in the fed funds market.


      “…Money market funds: According to Crane data, MMF AUM declined $9bn on Friday but still $32b higher WoW. The flow of money has continued to move primarily into and out of government institutional funds. The decline in MMF AUM aligns with the $13b decline in ON RRP take-up on Friday.


      “…ON RRP: Take-up declined $9bn on Monday and now only $33b higher since March 10. Despite MMF inflows, ON RRP take-up has not increased to the same degree, likely due to FHLB issuance and some gov't MMFs unable to invest in repo.


      We expect MMF take-up at the ON RRP to increase heading into the X-date as MMFs typically want to avoid bills maturing following projected X-dates.


      “…Fed data: Fed H.8 data for the week ending May 3rd showed domestic bank balance sheets increased by $28b, led by small banks. The increase on the asset side was driven by higher cash / deposits, consistent with the $34b increase in reserves. The Fed's H.4.1 data for the week ending May 10th however, showed an $11b increase in borrowing from banks which will be reflected in Friday's H.8. release.”


    Currently, SOFR swaps – 2s -9.5bps (+0.25bps), 3s -15.5bps (-0.75bps), 5s -22bps (-0.625bps), 7s -29.25bps (-0.25bps), 10s -30bps (-0.5bps), 20s -67.375bps (-0.125bps), 30s -73.75bps (-0.5bps).



     New issues



    • Ovintiv Bank is working on a 4-part 2y, 5y, 10y and 30y benchmark via GS, MS, JPM, RBC and TD.  Baa3/BBB-/BBB-.  Price talk: +200bps area, +250bps area, +310bps area, +360bps area.


    • Pfizer plans a $TBA 8-part  (2y, 3y, 5y, 7y, 10, 20y, 30y, 40y). Leads BofA, Citi, GS and JPM. A1/A+, Price talk +80bps, +95bps, +115bps, +135bps, +145bps, +150bps, +165bps, +180bps area. $25-30bn expected


    • 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.


    • 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+.


    • CoE Development Bank priced a $1bn 3y Social Global.  Leads are CA, MS, NatWest and Nomura. Swaps +24bps.