USD Swaps: Steepening as skip for June floated; Debt ceiling vote

Prices chart 11 Oct 2021
The front end swung back to pricing in a pause as Fed speak floated a skip, rather than a pause. Beige Book saw some moderating, slowing.

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  • Steepening as skip for June floated; Debt ceiling vote 

  • New issues


    Steepening as skip for June floated; Debt ceiling vote 

    As the House prepares to vote on the debt ceiling, Treasuries have rallied off the lows of the day. The 10y note yield is last 5.3bps lower at 3.641% while 2s10s is last 0.4bps steeper at -76.2bps and 5s30s 1.8bps steeper at 10.25bps. Equities all closed lower (DJIA -0.41%, S&P -0.61% and Nasdaq -0.63%). This afternoon’s Fed’s Beige Book saw a “slower pace” of employment increases and a moderate increase in prices, “though the rate of increases slowed in many districts” while economic activity was “little changed overall.”


    As for Fed speak, remarks skewed towards a conditional pause. Fed Reserve Governor Jefferson (voter) said that “skipping a rate hike at the coming meeting would allow the Committee to see more data before making decisions about the extent of additional policy firming” and explained that a pause “should not be interpreted to mean that we have reached the peak rate for this cycle.”


    Philly Fed’s Harker (voter) comments followed shortly thereafter, and were direct, saying that the Fed should skip a hike at the June meeting but that a skip was not a pause – as a “pause says you may hold there for a while, and I don’t know if we are ready for that.”


    Front end futures quickly rallied – around 8pts in the SFRM3 at the highs– swinging the probability back to pause at 65.7% last from just 33.4% yesterday. From these swings, one source remarked that the market remains highly nervous over the June meeting and the outcomes remain wide. And with the CPI print just the day before the meeting, the likelihood of further volatile price action will remain high.


    Swap spreads saw another steepening with front end and belly spreads narrowing versus long end spreads widening amid mostly lower than average volumes.


    Elsewhere, IG new issuance priced $1.6bn across two new deals, bringing the weekly volume to $12.85bn. May ends with $150.3bn – the second highest month for the year - and follows a poor April ($65.7bn) and a volatility impaired March ($100bn).


    2s -10.5bps (-1.5bps), 3s -16.875bps (+0.25bps), 5s -21.25bps (-0.5bps), 7s -27.5bps (-0.5bps), 10s -26bps (-0.125bps), 20s -66bps (+0.625bps), 30s -69bps (+0.5bps).



    New issues  


    • NRW Bank is working on a $500m 2y deal via CIBC, Daiwa and Scotia.  A1/AA/AAA.  Price talk: SOFR + 25bps area. Expected to price tomorrow.


    • American Electric Power launched a $850m 2y deal via JPM and MIZ.  Baa3/BBB+/BBB-. +155bps.


    • Hong Kong priced a $2.25bn 3-part ($500m 3y, $750m 5y and $1bn 10y greens). Leads Credit Agricole, CIB, HSBC, Citi and JPM.  AA+/AA-.  +30bps, +35bps, +40bps.


    • RenaissanceRe priced a $750m 10y benchmark via Barclays, HSBC, MS and WFC.  A3/BBB+/A-.  +215bps.