USD Swaps: Flushing out further to higher yields; Topping out?

Price charts 25 Nov 2021
Yields spilled higher still with the 2y note yield rolling past 4.50% amid more flattening. Some see yields finally looking toppy. 7y was strong.

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  • Flushing out further to higher yields; Topping out?

  • New issues


    Flushing out further to higher yields; Topping out?

    UST yields pushed higher still today, with the 2y note yield soaring past 4.50% to 4.533% (15.5bps higher) while the 10y note yield is last 3.82% to 7.7bps higher. 2s10s flattened an impressive 8bps to -71.7bps while 5s30s dropped 8.5bps to 8.2bps, roll adjusted.


    The unrelenting nature of the past two weeks of selloff has seen yields more than 50bps higher in the front end. “If you caught this move, great,” considered one source, who suggested that fast money has been pushing yields higher as resistance has been slim. Overall, however, the source judged “it is tough to be short here, and it seems like most are neutral with a lack of liquidity underneath.”


    Equities, led by tech, ended mostly higher (DJIA -0.11%, S&P +1.07% and Nasdaq +1.71%). Elsewhere, the probability of a 25bps rate hike in June rose to 53% last, from 36.5% yesterday as implied by futures. “The economy is still strong,” noted one source, who pointed out that the data/headline dependent nature of the price action - amid less overall conviction and low liquidity - has resulted in some large rate moves. Meanwhile debt ceiling headlines were more optimistic overall today, sources find.   


    At this point, one trader felt that rates “look toppish here” and suggested that the apex of the move might very well be tomorrow, as month end buying could reverse yields at this point. Plus, the auctions this week have done well, with for example, today’s $35bn 7y a result, with the auction going through the 1pm bid side by 1.3bps and drawing a rate of 3.827%. Still, the source noted that the market has sent mixed signals: even though the auctions have come through, Treasuries have continued to sell off.


    As for details of the 7y auction, indirects rose (72.3%) while directs dropped (17.3%) and primary dealers were left with a smaller 10.4% allocation. The bid-to-cover was a robust 2.61x.


    Meanwhile, swap spreads generally steepened versus the underlying flattening of the rate curve amid mixed volumes best seen in the front end and the 7y maturity.


    2s -8.5bps (-1.125bps), 3s -16bps (-0.25bps), 5s -19bps (-0.375bps)*, 7s -27.25bps (+0.75bps), 10s -26.625bps (+0.875bps), 20s -66.75bps (+0.125bps), 30s -70.5bps (+0.25bps).


    *adjusted for the 3.5bps give.



    New issues  


    • Kexim (Aa2/AA) plans USD 10y and/or EUR 3y, 5y or 7y (Green) bonds after meeting investors on May 25. Leads are Citi, CA, HSBC, ING, JPM and SocGen.