USD Swaps: Spreads edge wider; Ceiling talk

Chart 24 Nov 2021
USTs are in the green and spreads are a touch wider ahead of the data and the 20y auction. Amid slightly better noises, banks look at the ceiling.

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  • Spreads edge wider

  • Ceiling talk improves

  • New issues


    Spreads edge wider

    Swap spreads are edging wider as issuance pauses for the market to swallow Pfizer’s $31bn deal and USTs gain with 5y spreads at -21.50bps (+0.125) and 30s at -72.00bps (+0.75). UST yields are a touch lower led (marginally) by the longer end with the 10y at 3.52% (-2bps) while Bunds are outperforming (see Total Derivatives). Ahead, S&P futures are +0.4% and testing session highs in the run up to the opening bell. Treasury will sell $15bn in 20y bonds while data on the slate for today includes housing starts, seen falling 1.4% to 1.400m.  


    In the news, Brevan Howard feeder fund BH Macro continues to find the going tough with the fund’s NAV basically flat at +0.04% for the month to May 12. That gives a loss of -3.97% for BH Macro for the year to date, most of which arrived in March’s bank-driven flight to the short end of the curve.


    Ceiling talk improves

    US sovereign CDS levels have come off the wides with 5y around 71bps vs a peak last week of around 74bps. That follows slightly more positive noises from the White House and Congress but no confirmed progress on a number of key points (the WSJ says that “White House and congressional staff have been meeting behind closed doors for several days. But it wasn’t clear after Tuesday’s meeting between Mr. Biden and the congressional leaders whether significant progress had been made” – see article), Barclays summarises the current market situation:


      “Our latest estimates suggest the Treasury has enough cash and borrowing capacity to operate normally until sometime between June 4 and 12. There is some uncertainty about the x-date as outlays have been running a bit faster than expected, though they could slow. This uncertainty is reflected in Secretary Yellen’s latest warning letter to the House.”


      “Short-term investors typically ‘run and hide’ ahead of the x-date. This episode is unique, as it started earlier and has been more acute. Yields on debt ceiling bills have risen 100bps in the past month.


      “Once the debt ceiling is lifted, we look for the Treasury to restock its cash balances. The effect on bank reserves, however, depends on money fund behavior. If heavy bill issuance cheapens tri-party repo rates, money could flow out of the RRP to rebalance bank reserves as the Treasury’s cash balance rises.”


    New issues

    • Kommunekredit plans a $1bn 5y at swaps +44bps. Leads are BMO, Daiwa, DB, RBC and SEB.


    • Abu Dhabi real estate firm Aldar Investment (Baa1) is preparing a $500m  10y Green Sukuk at around Treasuries +185bps through ADCB, ADIB, DIB, ENBD, FADB, HSBC (B&D), Mashreq and StanChart.


    • NRW Bank plans a $1bn 3y at swaps +32bps. Leads are BofA, Citi, Nomura and RBC.


    • Hungary’s OTP Bank (Baa3/BBB-) is preparing a USD 4y NC3 bond at around 7.5% through BNP, JPM, MS (B&D), OTP and SocGen.  


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


    • Korea Credit Guarantee Fund (Aa2/AA) is preparing a USD 3y Social in the region of Treasuries +155bps. Via BNPP.  


    • Pfizer yesterday priced a $31bn 8-part ($3bn 2y, $3bn 3y, $4bn 5y, $3bn 7y, $5bn 10y, $3bn 20y, $6bn 30y, $4bn 40y). Leads are BofA, Citi, GS and JPM. A1/A+. +60bps, +75bps, +95bps, +115bps, +125bps, +130bps, +145bps, +160bps. Fourth largest bond deal ever and final books around $82bn.


    • Ovintiv Bank yesterday priced a $2.3bn 4-part ($600m 2y, $700m 5y, $600m 10y and $400m 30y). Leads are GS, MS, JPM, RBC and TD.  Baa3/BBB-/BBB-.  +160bps, +215bps, +275bps, +325bps.


    • Saudi Arabia on Monday sold $3bn 6y and $3bn 10y Sukuks. Leads are Citi (B&D 6y), JPM and StanChart (B&D 10y). A1/A+. +80bps and +100bps.