USD Swaps: Yields track higher into debt ceiling meeting

Chart up line Oct 2022
UST yields drifted higher ahead of the debt ceiling meeting this evening. IG issuance priced just under $10bn. JPM examines debt ceiling outcomes.

Start a free trial to read this article

Join today to access all  Total Derivatives content and breaking news. Already a subscriber? Please Log In to continue reading.

Or contact our Sales Team to discuss subscription options.

Get in Touch
Blurred image of Total Derivatives article content


  • Yields track higher into debt ceiling meeting

  • Debt ceiling outcomes – JP Morgan  

  • New issues


    Yields track higher into debt ceiling meeting  

    Treasuries have pulled lower in ahead of the meeting between Biden and Republican leaders on the debt ceiling scheduled for 5:30pm EST. The 10y note yield is last 3.726% or 4.4bps higher in yield while 2s10s has flattened 1bp to -60.8bps while 5s30s is near unchanged at 19.8bps. Meanwhile, equities closed mixed (DJIA -0.42%, S&P +0.05% and Nasdaq +0.50%).


    Elsewhere, aside from debt ceiling headlines, non-voting Fed speak veered hawkish today. St. Louis Fed President Bullard - who seems to enjoy rattling the markets, believed one source - proclaimed “I’m thinking two more moves this year.” Meanwhile, Minneapolis Fed President Kashkari judged it would be a close call in June between a pause and a hike and emphasized “what is important to me is not signaling that we are done.”


    Swap spreads widened in a low volumes trading session, with exception of the front end 2y spread that resumed its unrelenting tightening after a small bounce late last week. As for candidates for swapped issuance, Citigroup priced a $3.2bn 11y NC10, while in total IG new issuance (ex-SSA) saw nine issuers price a total of $9.45bn. May MTD is closing in on expected monthly total with $132.5bn currently - or just $2.5bn shy of the expectations for the entire month, sources note.


    2s -11bps (-1.25bps), 3s -14.75bps (+0.625bps), 5s -22bps (+0.5bps), 7s -28.125bps (+1.125bps), 10s -27.75bps (+0.375bps), 20s -65.25bps (+1.25bps), 30s -70.125bps (+0.75bps).



    Debt ceiling outcomes – JP Morgan  

    In regards to the debt ceiling, analysts at JP Morgan acknowledge “there is still a tremendous amount to accomplish before early June, as we don’t have even an outline of an agreement, and the situation remains fluid, so we acknowledge that downside risks remain elevated.” Thus as the deadline approach the deadline, JP Morgan looks at the outcomes on both sides of the coin:


      ”In the unlikely event of a technical default, we think front-end yields would decline materially, as markets incorporate expectations of more aggressive Fed easing, and credit spreads would widen, while the dollar would likely weaken versus other reserve currencies. There are no cross-default provisions on Treasuries, so we are likely to see localized dislocations in the event of missed payment—consistent with the more isolated cheapening of early June bills over the past month.”


      Further “Rating agencies would likely temporarily downgrade the US sovereign rating until the default is cured, though we believe market behavior, rather than ratings, is likely to be the greater factor in determining haircuts on collateral. We also believe money market funds would not be forced to liquidate defaulted securities, though we could see shareholder redemptions.”


    On the flip side, what happens once the debt ceiling is lifted or suspended? JP Morgan assesses:


      ”At that point, Treasury is likely to increase T-bill issuance in order to replenish its cash balance (or Treasury General Account) to levels consistent with its cash management policy. This policy commits to holding enough cash to withstand the loss of market access for a week. Given the current size and contours of the Treasury market, we think this translates to about $600-650bn in cash: at the May refunding, Treasury forecasted a $600bn cash balance for the end of September. With the TGA at $57bn as of May 18 and likely to decline further, Treasury will likely have to ramp up issuance to raise its cash balance by more than $500bn once a resolution is reached. Combined with elevated deficit financing needs that will only be partially addressed by coupon issuance, we think it would take about $750bn in net T-bill issuance between early June and the end of September in order to get the TGA back to $600bn.”



    New issues  

    For a complete review of issuance over the past week, please see USD New Issues.


    • Tokyo (A+) plans a $500m 3y at around swaps +90bps  through Barclays, Citi, Goldman and MS (B&D). Expected to price Tuesday.


    • NedWatershcaps Bank plans a $1bn 5y Social. Leads Barclays, BNPP, CIBC and Citi. Aaa/AAA. Price talk in the region of swaps +47bps. Expected to price tomorrow.


    • Korea’s Kubota Credit Corp (A) is preparing a USD 3y bond through BofA, Barclays, MS and Nomura after meeting investors from May 22. 


    • Citigroup priced a $3.2bn 11y NC10. Self-led. Baa2/BBB/BBB+. +245bps.    


    • National Securities Clearing priced a $1bn 2-part ($400m 2y and $600m 5y). Leads BofA, Citi, Scotia and TD. Aaa/AA+. +85bps and +130bps.


    • Penske Truck Leasing priced a $1.2bn 2-part ($700m 3y and $500m 7y). Leads BofA, Citizens, FITB, JPM and WFC. Baa2/BBB/BBB+. +180bps and +250bps.  


    • Travelers priced a $750m 30y. Leads Citi, GS, MS, TD and WFC. A2/A/A. +150bps.


    • BGC Partners priced a $350m 5y. Leads BofA, CF, GS, PNC, REGFIN, WFC. BBB-/BBB-. 8%.


    • AEP Texas priced a $450m 10y. Leads BofA, JPM, Mizuho and Scotia. Baa2/A-/BBB+. +172bps.


    • American Tower priced a $1.5bn 2-part ($650m 5y and $850m 10y). Leads BBVA, Citi, BofA, JPM and MS. Baa3/BBB-/BBB+. +155bps and +187.5bps.     


    • Progressive priced a $500m 10y. Leads GS and JPM. A2/A/A. +125bps.


    • Pricoa Global Funding priced a $500m 5y FA backed. Leads GS, JPM, MS and SMBC. Aa3/AA-/AA-. +135bps.