USD Swaps: Bull steepening into debt ceiling vote; IG supply fires up

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USTs rallied double digits in a bull steepening move. Swap spreads narrowed mostly. IG new supply saw $11.25bn. ARRC recaps May meeting.

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  • Bull steepening into debt ceiling vote; IG supply fires up

  • ARRC May meeting highlights

  • New issues


    Bull steepening into debt ceiling vote; IG supply fires up

    Treasuries rallied in a bull steepening move with yields down anywhere from down 7bps to down 13bps, led by the 3y to 7y sector, ahead of the potential debt ceiling vote as soon as tomorrow evening. The 10y note yield is last 3.692% or 11.8bps lower while 5s30s is last 4.6bps steeper at 8.3bps. Data today was mixed, with higher housing data and consumer confidence offset by lower manufacturing data. Equities ended mixed (DJIA -0.15%, S&P -0.03% and Nasdaq +0.32%).


    In Fed speak, Richmond Fed President Barkin (alternate) said “However I look at it, it just looks like inflation is too high.” Futures are currently pricing 68.8% of a 25bps hike for June, and looking toward the June meeting, a source regarded that the Fed “is not going to say they are done and will need to keep the option open.” As for the debt ceiling a source believed that the resolution would pass but “partisan politics is playing out.”


    Swap spreads narrowed in the front end and belly with volumes best seen in the 5y and 7y maturities. On the IG new issuance side, a total of $11.25bn priced, led by a $5bn 5-part from CVS, a long 10y $2.75bn by AT&T and in the Yankee FIG category, Bank of Montreal came with a $1.75bn 2-part 3y fixed and 3y FRN.


    2s -9.5bps (-1bps), 3s -17bps (-0.875bps), 5s -20.75bps (-1.375bps), 7s -26.75bps (-0.75bps), 10s -26bps (-0.25bps), 20s -66.375bps (+0.25bps), 30s -69.5bps (-0.125bps).



    ARRC May meeting highlights

    Alternative Reference Rates Committee (ARRC) released highlights of the meeting on May 25, 2023. The complete meeting agenda can be found here. Full minutes for this meeting will be posted in the coming weeks.


    Topics discussed included momentum towards SOFR, transition-related progress and issues.


    ARRC members noted continued progress in the transition from LIBOR to SOFR. In the most recent sentiment survey of ARRC members, respondents continued to characterize the LIBOR transition overall as progressing smoothly or generally smoothly in 2023. Some respondents noted the need for efforts to remediate syndicated loans to accelerate. As shown in the charts here, data from cash and derivatives markets show continued momentum. SOFR is predominant across cash and derivatives markets.




  • SOFR swaps have consistently accounted for more than 85 percent of daily volumes on average of interest rate risk traded in the outright linear swaps market since June 2022 while LIBOR swaps have accounted for less than about 10 percent of the overall volume over the same period. Figure 8 shows that average daily SOFR futures volumes steadily increased throughout 2022 and the beginning of 2023.


  • As reported by Clarus, following CME Group’s conversion of LIBOR futures, SOFR reached an all-time high share of total USD derivatives DV01 risk traded in April.


    ARRC members discussed the state of preparation for June 30 and noted that, while market participants are largely prepared, it was important that they:


  • Continue to communicate rate changes for securities with CUSIPs using DTCC’s LIBOR Replacement Index Communication Tool.

  • Continue to remediate LIBOR loans and ensure that borrowers and lenders are actively and cooperatively involved in doing so.

  • Be sure they understand their fallbacks, particularly for end users with both derivative positions (which will fall back to compound overnight SOFR under the ISDA protocol or, if governed by US law, under the LIBOR Act) and cash product positions (which will fall back to CME Term SOFR or averages of SOFR set in advance in most cases), and any steps needed to adapt them as well as any time limits on regulatory relief for amending derivatives.

  • Understand fallbacks for contracts referencing ICE USD LIBOR Swap Rates, which are not covered by the LIBOR Act and may be forced to rely on dealer polling.



    New issues  

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


    • AT&T launched a $2.75bn long 10y. Leads BNP Paribas, JPM, Santander and TD. Baa2/BBB/BBB+. +175bps.


    • CVS priced a $5bn 5-part ($1bn long 5y, $750m long 7y, $1.25bn 10y, $1.25bn 30y and $750m 40y). Leads Barclays, BofA, GS, JPM and WFS. Baa2/BBB. +125bps, 155bps, +165bps, +200bps, +215bps.  


    • Bank of Montreal priced a $1.75bn 2-part ($1.35bn 3y fixed and $400m 3y FRN). Leads BMO, Citi, GS, MS, Lloyds and WFC. A2/A-/AA-. +120bps and SOFR +133bps.   


    • NiSource priced a $750m 2-part ($300m tap of its 5.25% Mar 2028 and $450m 10y). Leads Barclays, BNP Paribas, MUFG, Scotia and USB. Baa2/BBB+/BBB. +135bps and +1755bps.


    • AerCap Ireland Capital priced a $1bn 5y. Leads Barclays, CACIB, DB, RBCCM, WFC. Baa2/BBB/BBB. +217bps.


    • TD Bank priced a $1.6bn 3y Canadian Covered Bond at swaps +73bps. Leads are Citi, Lloyds, Scotia, StanChart and TD (B&D).


    • Kexim (Aa2/AA) priced a $500m 10y (plus EUR 3y and 7y Green) bond. Leads are Citi (B&D), CA, HSBC, ING, JPM and SocGen. +90bps.