USD Swaps: Steeper; Supply and spreads

US Treasury 9 Nov 2020
The Treasury curve steepened as the front end gained following the initial claims data while swap spreads remained narrowly mixed.

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  • Steeper; Supply and spreads

  • New issues


Steeper; Supply and spreads

Higher-than-expected initial claims lifted Treasuries and gave the front end a boost today with the curve steeper and the 5y now 3.91% (-3bps), down from 3.95% shortly before the data. SOFR futures are 3-5 ticks stronger in the reds.


In hedge fund news, Rokos’s $13.7bn macro fund gained 5% in May according to Bloomberg, cutting the fund’s loss for the year to 5% after being 15% down at  one point in March. In comparison, Brevan Howard’s BH Macro feeder fund fell 1.54% in May before rising 0.21% in the week to June 2nd to leave the fund also down around 5% (5.32%) for the year to date.     


Ahead, in the wake of the debt ceiling deal and yesterday’s updated Treasury projections, Barclays mulls the outlook for supply beyond the bills sector and warns of complacency:


    “A worsening fiscal profile, amid fairly modest spending cuts, suggests that the upcoming supply deluge will not be limited to T-bills. The Treasury will soon need to increase auction sizes meaningfully across the curve, potentially to levels beyond the COVID peak. We believe the rates market is too complacent.


    “Current auction sizes of notes/bonds are not high enough, in our view, to finance…high deficits over the coming years, while keeping stable the share of T-bills…We expect the Treasury to start raising auction sizes at the August refunding meeting


    “Markets are not fully appreciating that the process of raising sizes could last several refunding meetings and/or be more front-loaded. Further, consensus budget deficit forecasts are still somewhat more optimistic than the CBO's in later years. We estimate that there is scope to add 10-20bp to the term premium from supply-related factors.


    “Further tightening in 2y SOFR spreads should be limited. Most of the Treasury's planned restocking of its cash balance this month should come from RRP rather than from declining bank reserves. This would mean that SOFR rates are unlikely to be substantially higher than the fed funds rate. On the other hand, intermediate to long-dated spreads have room to tighten given the worsening fiscal outlook.”


SOFR fixed unchanged at 5.05% for June 7 while effective fed funds was also steady, at 5.08%. Swap spreads are narrowly mixed in decent volumes at the front end, with 2s at -9.75bps (-0.50), 5s at -22.75bps (+0.25), 10s at -27.125bps (-0.125) and 30s at -69.00bps (+0.25).


New issues: FHLB, EDF, Handelsbanken, NatWest, Finnvera

  • FHLB is preparing a USD 2y Global note at around Treasuries +11bps through Citi, TorDom and WFS.


  • EDF (Ba2/B+/BBB-) plans a $1.0-1.5bn perp HC10 Hybrid sub at around 9.5%. Leads are BNPP (B&D), BofA, DB, MUFG, SMBC Nikko and StanChart. 


  • Handelsbanken is preparing USD 3y, 3y FRN and 5y (SNP) notes at around Treasuries +135bps, SOFR equivalent and +195bps. Leads are BNPP, Citi, GS and MS.


  • NatWest Group (A3/BBB+/A) plans a USD 6.25y NC5.25y in the region of Treasuries +225bps. Leads are Citi, GS, MS, NatWest and TorDom.  


  •  Santander Holdings USA  (Baa3/BBB+) plans a USD 6y NC5 at around Treasuries +285bps. Leads are Citi, MS, Santander and WFS.  


  • Finnvera is preparing a $1bn 5y at swaps +47bps via BofA, Citi, JPM and TorDom (B&D).


  • Insurance broker HUB International plans a $2.675bn 7y NC3 B2/B secured bond. Leads are ATB, Barclays, BofA, BMO, CS, GS, JPM, Macqurie, MS, Nomura and RBC.  Expected to price tomorrow.


  • Korea’s SK Broadband (A3/A-) plans USD 3y or 5y bonds after meeting investors on Jun 12. Leads are BNPP, HSBC and Mirae.


  • Indonesia’s PT Pertamina Geothermal (Baa3/BBB-) is preparing a USD bond after meeting investors Jun 13-20. Leads are ANZ, BNPP, Citi, HSBC, Mandiri, MUFG, SMBC Nikko and UOB.


  • Vale Overseas yesterday priced a $1.5bn 10y. Leads are BMO, CA-CIB, Citi, JPM, MUFG, Scotia and SMBC.  Baa3/BBB-/BBB.  +245bps.