USD Swaps: USTs bear flatten; IG deals line up post Pfizer; 20y auction on deck

Chart red green numbers 13 Jun 2022
USTs are bear flattening while a flurry on IG deals have lined up after Pfizer’s pricing. JPM previews the 20y bond auction.

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  • USTs bear flatten; IG deals line up post Pfizer; 20y auction on deck

  • New Issues


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    USTs bear flatten; IG deals line up post Pfizer; 20y auction on deck

    Debt ceiling talks between the White House and congressional aides continue – to this point still fruitlessly – in the backdrop today as Mighty Joe Biden sets to hop on Air Force One to head to the G7 meeting in Japan.   Meanwhile, today’s economic data saw April housing starts rose higher than expected +2.2% (versus -1.4% Bloomberg consensus) while building permits underwhelmed with a -1.5% print last month (versus 0% consensus).


    Against this backdrop, the major domestic equity indices are all in the green (Dow +0.41%, S&P +0.33%, Nasdaq +0.41%) with regional banks leading the charge after Western Alliance (…currently up 11%) said that deposits grew by over $2bn since last quarter ended. Meanwhile, in rates-space, Treasuries are bear-flattening with the benchmark 10y note yield 1.9bps higher at 3.553% while the 2s10s spread has compressed 3.4bps to -58.7bps.


    In SOFR-space, red SOFR futures are currently posting 4.5 to 8 tick losses while SOFR swap spreads are now mixed amid below-average activity overall with the spread curve steepening against the flattening in underlying rates.  In the backdrop, a flurry of IG deals have hit the tape today after the pricing of Pfizer’s mega-$31bn multi-tranche deal yesterday cleared the lane for other names today.


    Ahead, Treasury will auction $15bn newly issued 20-year bonds (May23s) at 1pm today, unchanged from the previous new issue auction in February. Heading into today’s supply, strategists at JP Morgan believe that the issue should be taken down without much of a hiccup and they highlight the following:


      ”…The April auction tailed 0.3bp to pre-auction levels, as the share of end-user demand ticked down slightly to 88.0%, the lowest since last October.


      “…Since the last auction, 20-yields have risen 4bp and are trading at their highest levels in over two months and the sector has underperformed along the curve, with the 10s/20s/30s butterfly widening by 4bp over the past month.


      “…However the sector appears 2bp rich relative to the wings after adjusting for the level of 20-year yields, the slope of the 10s/30s curve, and the level of HG spreads as a proxy for risk appetite.


      “…At least some of this outperformance can be attributed to meaningfully improved liquidity in the sector with market depth retesting its highest levels over the past year. The WI roll opened at +1bp and has since richened to +0.5bp.


      “…Overall, despite slightly rich relative valuations, given the recent rise in yields and improving liquidity, we expect (today’s) auction will likely be digested smoothly.”


    Currently, SOFR swaps – 2s -11.625bps (-0.75bps), 3s -16bps (-0.875bps), 5s -22.25bps (-0.5bps), 7s -29bps (-0.25bps), 10s -29.5bps (unch), 20s -66.125bps (+0.75bps), 30s -72.375bps (+0.375bps).



     New issues

    • EDF is working on a 5y, 10y and 30y benchmark via BofA, CA-CIB, BNPP, DB, JPM, MIZ, MS, MUFG, SocGen, Santander, StanChart and WFS.  Baa1/BBB/BBB+.  Price talk: +250bps area, +300bps area, +340bps area.


    • Schwab is working on a 6NC5 and 11NC10 benchmark via BofA, Citi, CS, GS, JPM and WFC.  A2/A-/A.  Price talk: +230bps area, +255bps area.


    • Southern California Gas is working on a 10y and 30py benchmark via CIBC, JPM, Santander, Scotia and TD.  Aa3/A+/AA-.  Price talk: +175bps area, +200bps area.


    • Southern California Edison is working on a 3y and 30y benchmark via BMO, Citi, JPM and WFC.  A2/A-/A-.  Price talk: +130bps area, +215-220bps area.


    • CNA Financial is working on a $400m 10y deal via BofA, JPM and WFS.  Baa2/A-/BBB+.  Price talk: +210bps area.


    • BlackRock is working on a 10y benchmark via BofA, HSBC and JPM.  Aa3/AA-.  Price talk: +145bps area.


    • National Rural Utilities is working on a $300m 30NC5 sub-deal via JPM, MIZ, RBC and TSI.  A3/BBB/BBB+.  Price talk: 7.375%.


    • BNY Mellon is working on a $500m 3NC2 deal via LOOPCM, SAMRCO, ACADSE, SIEWIL and RSEEL.  Aa2/AA-/AA.  Price talk: +120bps area.


    • LYB International Finance III is working on a $500m 10y green deal via ING and MS.  Baa2/BBB/BBB.  Price talk: +235bps area.


    • Amcor Finance USA Inc. is working on a 10y benchmark via BofA, Citi, JPM and WFC.  Baa2/BBB.  Price talk: +240bps area.


    • ITC is working on a 5y and 10y benchmark via Barclays, GS, MIZ and MS.  Baa2/BBB+.  Price talk: +155bps area, +200-205bps area.


    • 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.