USD Swaps: Swinging back higher; Belly led; Refunding announced

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USTs are back higher in a belly-led move after higher jobless claims. Swap spread curve steepens and JPM favors 5y wideners via a 4y/OTR 5y flattener

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  • Swinging back higher; Belly led; Refunding announced  

  • Zero coupon callables and Formosas

  • New issues


    Swinging back higher; Belly led; Refunding announced  

    Treasuries are back higher with a boost from higher jobless claims (261k versus 235k forecast), sending yields down 4 to 6.8bps in a belly led rally. The 10y note yield is last 5bps lower at 3.743% while 5s30s is 3.5bps steeper at 4.25bps and 2s10s around unchanged. Equities are climbing higher (DJIA +0.25%, S&P +0.36% and Nasdaq +0.76%).


    The Treasury announced its compressed refunding for next week. It will auction $40bn 3y notes on Monday along with reopening $32bn 10y notes in the afternoon, followed by a $18bn reopening of the 30y on Tuesday. Bills sizes were mostly unchanged for next week ($65bn 13wk, $58bn 26wk, $65m 3 month, $58bn 6 month, $45bn 6wk CMB and $38bn 52wk).


    The swap spread curve is steepening amid mixed volumes best seen in the front end of the curve. IG new issuance is seeing some Yankee issuers today (NatWest and Santander) which are likely swap candidates.  


    While JP Morgan is a buyer of the front end of the spread curve (see link) , further out the curve JP Morgan sees that 7y and longer maturity swap spreads appear “closer to fair value” and thus the bank turns neutral there. But at the same time JP Morgan finds spreads in the 5y maturity sector “remain wide to fair value" and thus the bank is biased towards narrower 5y swap spreads. One advantageous way to position for this - while also taking advantage of slide on the term structure of swap spreads - "is by initiating 4y/ OTR 5y swap spread curve flatteners,” the bank highlights.


    To be sure, it notes that “swap spreads in the 5y sector roll narrower with the passage of time, but spreads in the 4y sector begin to roll up.” Thus, “given attractive slide as well as the fairly localized nature of the wideness of 5y swap spreads,” JP Morgan recommends initiating 4y spread wideners versus 5y OTR swap spread narrowers.


    2s -10.375bps (-1bps), 3s -16.875bps (-0.25bps), 5s -22.875bps (+0.125bps), 7s -29.375bps (+0.25bps), 10s -27.125bps (unch), 20s -65.25bps (+0.625bps), 30s -69bps (+0.375bps).



    Zero-coupon callables and Formosas


    • JP Morgan sold an AUD42m (CORRECTS) 10y NC5 fixed callable Formosa. The EMTN matures Jun 2033 and is callable annually from Jun 2028 and pays a coupon of 5.75%. Leads JPM, Shanghai Commercial and Yuanta. Announced Jun 6.


    New issues  


    • 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. 


    • Ally Financial plans a $TBA 6y NC5. Leads Barclays, Citi, JPM and RBCCM. Baa3/BBB-/BBB-. Price talk +337.5bps area.  


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


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


    • 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.


    • 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. 


    • EDF (Ba2/B+/BBB-) launched a $1.5bn perp HC10 Hybrid sub at 9.125%. Leads are BNPP (B&D), BofA, DB, MUFG, SMBC Nikko and StanChart.


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