USD Swaps: Belly leads gains, spreads in; Bills and liquidity

Chart green up line 15 Jun 2022
The belly of the curve is leading the gains today and spreads are tighter as Bunds gain and House leaders hunt for votes. Data and Fedspeak loom.

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  • Belly gains, spreads tighter, Nasdaq up

  • New issues


Belly gains, spreads tighter, Nasdaq up

Treasury yields are 6-9bps lower led by the belly with the 5y note at 3.84% (-9bps) following the debt limit deal, gains for Bunds following softer Eurozone inflation data and a drone attack on Moscow. In the news, WaPo reports that arm-twisting is underway as House Republicans attempt to secure the 218 votes required for the deal to pass. The WSJ concludes that  President Biden and Speaker McCarthy “appear on track to gain enough bipartisan support to suspend the debt limit”, but adds that the deal could still run into “procedural obstacles” in the lead up to the deadline of June 5.   


Ahead, data today include FHFA and S&P CoreLogic 20-City house prices, with the latter seen slowing to -1.60%yoy (0.00%mom) from +0.36%yoy last month. If the consensus proves correct, it would represent the first negative yoy print for the index since May 2012 and represents a sharp fall since house price inflation surged to a post-Covid to peak of over 21%yoy in April 2022. Elsewhere, this week's Fedspeak kicks off with comments today on the economy by Richmond Fed President Tom Barkin.


In swaps, spreads are tighter across the curve in above-average outright SOFR volumes with 2y spreads at -9.75bps (-1.25), 5s at -20.25bps (-1.00), 10s at -25.75bps (-0.25) and 30s at -69.75bps (-0.25). SOFR futures are as much as to 13 ticks stronger in the reds and greens while Nasdaq futures are +1.4% as AI hope/hype pushed up tech stocks led by the chip firms. 


Assuming the debt deal passes Congress, analysts have been busy trying to gauge the impact on issuance and dollar liquidity. Deutsche Bank, writing at the end of last week, noted that more attractive bill rates relative to repo were already starting to “draw end-users” back into bill auctions. It continued:


    “What end-user demand for bills will look like post the debt ceiling is a crucial question, as an anticipated significant increase in bill supply could remove a substantial amount of liquidity from the market.


    “If the marginal bill buyer is an investor in the Fed’s ON RRP facility or foreign repo pool, the liquidity reduction may have a less deleterious effect on short-term markets, as cash invested in those facilities is perceived by some as dormant liquidity compared with cash balances held by banks. On the other hand, if only bank depositors make up the marginal bill investor, then aggregate bank balances would dwindle, potentially weakening some banks' liquidity positions.”


Deutsche concludes that short-term investors are “nimble” and tentatively suggests that higher bill rates relative to repo should “cause RRP balances to become less sticky”.


New issues

  • Kexim (Aa2/AA) plans a USD 10y (plus EUR 3y and 7y Green) bond. Leads are Citi (B&D), CA, HSBC, ING, JPM and SocGen. Seen at around Treasuries +120bps.


  • TD Bank is preparing a USD 3y Canadian Covered Bond at around swaps +75bps. Leads are Citi, Lloyds, Scotia, StanChart and TD (B&D).