USD Swaps: USTs softer as Bunds slide; Signals or noise?

USTs are softer and S&P futures are up again but Bunds are leading today's global fixed income selloff. Ahead, banks warn of noisy signals.

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  • USTs softer as Bunds slide

  • Noise or signal? BNPP

  • New issues


USTs softer as Bunds slide

S&P futures are in the green again but Bunds are leading the drop in global fixed income today with yields up 10bps at the long end of the German curve versus a 3-4bps rise across Treasuries, with the 10y UST yield testing session highs at 3.60% and the 30y at 3.89% (+3bps). Traders in Europe were unsure about the drivers for the weakness in Bunds blaming a mixture of ECB speak, catch-up with debt limit good news and maybe position resets, with some countries also closed for the Ascension Day holiday. Shorter in, SOFRs are extending yesterday’s double-digit selloff by a further 4-6bps in the reds. And swap spreads are narrowly mixed at -22.50bps (unch) in 5y and -29.50bps (+0.125) in 10y. Outright swap volumes are below-par except in the 30y bucket.       


Noise or signal? BNPP

Data today include initial claims (consensus is for a 12K drop to 252K) and the Philly Fed index (see rising to -20.0 from -31.3).  BNP Paribas previews the numbers and warns that both are potentially noisy:            


    “Claims have vaulted up the list of Fed-relevant indicators this spring, as a way to assess fallout of banking-sector stress on the labor market. But the recent signal – an uptrend – may be misleading…Bloomberg reported that fraudulent applications for unemployment benefits were behind the recent uptick in claims in Massachusetts. Officials did not provide specifics as to the extent or timing, but we estimate that the net effect could be in the vicinity of 30k.”  


    “Two geographically adjacent Fed district surveys (Philadelphia and New York) have sent wildly different signals on manufacturing health in recent months…The overall tone for the sector has been weakening activity, but not collapse. That is consistent with the general slide in manufacturing output since mid-2022 highs.”


BNPP is also interested in today’s Fedspeak from Jefferson, Logan and Barr. “All three vote on the FOMC this year, with Jefferson and Logan more likely to touch on monetary policy than Barr. Both are centrists, which means heightened scrutiny for comments that touch on the June meeting.”


Ahead the bank still likes favor forward steepeners and being short 10s vs the 5s/10s/30s fly given “the economic fallout we expect at the second half of this year”. It continues:


    “However, given some comments from Fed officials that it is way too premature to talk about cuts, holding steeepeners may be painful. Therefore, we published a trade that benefits from falling vol and a Fed on hold through 2023 via a SOFRZ3 put ladder.


New issues

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


  • Korea Credit Guarantee Fund (Aa2/AA) today priced a $300m 3y Social at Treasuries +120bps. Via BNPP.


  • EDF yesterday priced a $3bn 3-part ($1bn 5y, $1bn 10y and $1bn 30y). Leads are BofA, CA-CIB, BNPP, DB, JPM, MIZ, MS, MUFG, SocGen, Santander, StanChart and WFS.  Baa1/BBB/BBB+. +215bps, +270bps, +310bps. EDF also priced CAD300m 7y and CAD200m 30y bonds.


  • Schwab yesterday priced a $2.5bn 2-part ($1.2bn 6y NC5 and $1.3bn 11y NC10). Leads are BofA, Citi, CS, GS, JPM and WFC.  A2/A-/A.  +205bps, +227bps.