USD Swaps: USTs tracking Gilts into 5y note auction

Chancellor Sunak waving 13 Jun 2022
USTs are following in the bear-flattening footsteps of Gilts after some hotter-than-expected UK inflation data into today’s 5y note auction.

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  • USTs tracking Gilts into 5y note auction

  • New Issues


    Click here for SDR USD IRS trades.


    USTs tracking Gilts into 5y note auction

    The clock continues to tick on finding a resolution to the debt limit impasse with no deal in sight as the standoff persists. Meanwhile, Treasury Secretary Yellen said that her department is “not involved in planning for what happens if there’s a default” – in all, not that comforting


    Against this backdrop, the major domestic equity indices are modestly in the red (Dow -0.61%, S&P -0.81%, Nasdaq -0.97%) but thus far fairing much better than bourses across the pond today (FTSE -1.94%, CAC -1.95%, DAX -2.04%) that are licking wounds after stronger UK inflation data and softer German IFO data hit the tape earlier (see Total Derivatives). 


    Similarly, Treasuries have also been knocked back in sympathy with Gilts in another bear flattening move today.  The benchmark 10y note yield is last 1bps higher at 3.702% after a brief test of 3.66% earlier while the 2s10s spread is another 3.5bps narrower (roll adjusted) at -60.8bps. 


    Meanwhile, SOFR futures are up to 4 ticks softer (Mar24 contracts) and up to 1 tick firmer (Dec24s) in the reds today while SOFR swap spreads are tighter across the board amid roughly average activity overall, and ahead of likely swapped deals from JP Morgan and KfW.


    Ahead, Treasury kicks off the second leg of this week’s coupon supply cycle with today’s $43bn 5-year notes, unchanged in size for the eighth consecutive month, after yesterday’s $42bn 2y note auction drew solid demand (see Total Derivatives).  Heading into today’s auction, strategists at JP Morgan believe that it should see a similar fate and the highlight the following:


      ”…The April 5-year auction cleared at 3.50%, 0.6bp through pre-auction levels as the share awarded to end-users was roughly unchanged at 86.4%. More granularly, investment manager demand rose 1.2%-pts to 71.6% and foreign take-down declined 1.1%-pts to 12.9%.


      “…The WI roll opened at -4.125bp, and has cheapened to -3.5bp since. Five-year Treasury yields have risen 25bp since the April auction. Along the curve, the 5-year sector looks fairly priced on the fly after adjusting for the level of rates and the shape of the curve.


      “…Importantly, we continue to think uncertainty around the debt ceiling debate should have bullish implications for Treasuries.


      “…On net, given the recent move to higher yields and ongoing debt ceiling concerns, we think tomorrow’s auction should be digested smoothly.”


    Currently, SOFR swaps – 2s -6.25bps (unch)*, 3s -15.25bps (-0.5bps), 5s -21.875bps (-0.5bps), 7s -27.875bps (-0.625bps), 10s -27.625bps (-0.5bps), 20s -66.5bps (-0.75bps), 30s -70.5bps (-0.5bps).


    * adjusted for the 5.375bps give.



     New issues

    • JP Morgan is preparing a USD 11y NC10. Seen at around USTs +190bps and self-led.  


    • Hungary’s MFB Bank (Baa2/BBB) is preparing a USD 5y at around Treasuries +300bps. Leads are BNPP, Citi (B&D), Erste and ING.


    • Malaysian sovereign wealth fund Khazanah (A3/A-) plans USD 5y Sukuk and 10y conventional bonds at around Treasuries +135 and 160bps. Leads are BofA, CIMB, DBS, JPM, Maybank, MUFG and OCBC.  


    • KfW launched a $4bn 5y Global at swaps +34bps. Leads are BMO, Citi and GS.