USD Swaps: Range breaches eyed; Spreads finally see a bounce

Down candle chart 26 May 2022
Today's further UST selloff threatened key support levels. Amid more positive debt ceiling comments, spreads widened. JPM eyes 2y key levels.

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  • Range breaches eyed; Spreads finally see a bounce

  • New issues


    Range breaches eyed; Spreads finally see a bounce

    The selling in USTs reached new depths today, with yields rising 5 to 11bps and in the process close to breaching some key levels. The 10y note yield is last 3.651% or 7.9bps higher and close to what many view the edge of support levels. Meanwhile 2s10s flattened -2.5bps to -62.1bps while 5s30s cascaded 5.5bps to 21.3bps – also around key support level. Equities rebounded higher into the close (DJIA +0.34%, S&P +0.88% and Nasdaq +1.51%).


    Whether or not the selloff has further momentum to bring yields even higher is likely data dependent, sources say, with one trader regarding that the “Fed can wait – although a dramatic reduction in CPI remains elusive.” Meanwhile, debt ceiling headlines turned mostly more positive today.


    Swap spreads pulled wider, with several maturities seeing the first significant bounce after tightening mostly throughout the month (for background, please see link). In particular, 10y and 30y spreads saw a late day bid to end them near the session highs, with the latter seeing higher than average volumes.


    Elsewhere, looking at the charts, analysts at JP Morgan noted yesterday that the 2-year note recent backup “traverses nearly the entire Mar-May trading range” and approaches support that includes the 4.24% 100-day moving average, 4.25% May equal swings objective, 4.26-4.30% range cheaps and 4.32% Mar 50% retrace.”


    JP Morgan believes “that area will continue to contain the market over the near-term and we expect a bullish reversal to develop in the days ahead.” Bigger picture, JP Morgan views “the current holding pattern as a bullish consolidation on the heels of the initial impulse from the 5.09% Mar cycle yield high” and it expects “a break through the 3.55-3.65% range yield lows into early summer and extension to next resistance that includes the 3.35% Mar-Apr .618 swing objective.”


    However, if the current support is breached and the market pushes through noted support, “the next chart levels to focus on rest at the 4.50% Mar 61.8% retrace and 4.59% Mar 13 bull gap,” it notes.


    2s -10bps (+0.875bps), 3s -15bps (+1bps), 5s -22bps (+0.625bps), 7s -28.75bps (+0.625bps), 10s -28.75bps (+1bps), 20s -66.5bps (unch)*, 30s -71bps (+1.375bps).


    *adjusted for the 0.2bp roll.



    New issues  


    • Mitsubishi HC Finance America has mandated Morgan Stanley for a series of FI investor calls starting June 5.  


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


    • IQVIA priced a $750m 5y fixed. Lead GS. Baa3/BBB-. +200bps. It also priced a high yield $400m 7y NC3 at 8%.


    • Korea Credit Guarantee Fund (Aa2/AA) yesterday priced a $300m 3y Social. Lead BNPP.  Aa2/AA. +120bps.