USD Swaps: Powell taking his usual grilling; 20y bond auction preview

Click here for SDR USD IRS trades.

Powell taking his usual grilling; 20y bond auction preview

Fed Chair Powell is currently taking his typical semi-annual grilling in front of House Financial Services Committee after delivering his prepared remarks earlier.  And thus far, Powell's testimony hasn't rattled the markets much with new gems of wisdom on monetary policy - outside of more hikes on the horizon.

With this, markets have hit the pause button as participants listen to Powell remarks with the major domestic equity indices slightly in the red (Dow +0.07%, S&P -0.57%, Nasdaq -1.08%) while Treasuries remain cheaper in all tenors.  The benchmark 10y note yield is last 6bps higher at 3.779% while the 2s10s spread 0.3bps wider -96.8bps.  

Meanwhile, white SOFR futures are 0.75-6 ticks lower across the board with reds are 3.5 to 4 ticks lower.  And SOFR swap spreads are narrowly mixed with the spread curve steepening amid below average activity in all but the 2y and 3y sectors. In the backdrop, more IG issuers are tapping the market today after just over $6bn in deals priced yesterday with SSA EDC working on a likely swapped deal in the 3y sector.

Ahead, Treasury will auction $12bn reopened 20-year bonds at 1pm tomorrow, unchanged from the previous reopening last month.  Heading into today’s supply, strategists at JP Morgan are see little issue taken it down and they highlight the following:

”…The May auction cleared 0.9bp through pre-auction levels, as the share of end-user demand ticked up by 0.7%-pts to 88.7%. Notably the investment manager share of demand rose 2.6%-pts to 73.5%, the higher since November, while foreign investor takedown declined 1.1%-pts to 13.4%.

 

“…Since the last auction, 20-yields have risen 5bp and are trading at their highest pre-auction levels since November. The 20-year sector has outperformed the wings by over the past month, but appears 3bp cheap relative to the wings after adjusting for the level of 20-year yields, the slope of the 10s/30s curve, and the level of HG spreads (as a proxy for risk appetite).

 

…Overall, outright and relative valuations, we expect today's auction "will likely be digested smoothly.”

Currently, SOFR swaps – 2s -9.75bps (-1bps), 3s -11.875bps (unch), 5s -21.375bps (-0.25bps), 7s -26.25bps (unch), 10s -26.25bps (unch), 20s -62.5bps (+0.375bps), 30s -65bps (+0.625bps).

Formosas & ZC callables

• Natixis sold a $20m 10y floating Formosa. The EMTN matures Jul 2033 and pays a coupon of 2y SOFR +165bps. Non-callable. Lead KGI. Announced Jun 16.

New issues

• Principal Life Global Funding is working on a $300m FA-backed deal via Barclays, BN PP, DB and MS. 

   

• Element Fleet is working a 3y benchmark via BofA, BMO and CIBC.  BBB/BBB+.  Price talk: +225bps area.

   

• Bank of Montreal is preparing a USD 5y Covered bond at around swaps +92bps. Leads are BMO (B&D), HSBC, Lloyds, RBC, Scotia and UBS.

   

• Nasdaq plans USD 4y to 40y bonds (and a EUR long 8y) to fund its acquisition of Adenza. Leads are BofA, Citi, GS, JPM, MS, Nordea and SEB.

   

• Hyundai Capital America is preparing USD 2y (Green), 3y, 5y and 7y bonds. Seen at around Treasuries +150, 170, 200 and 210bps. Leads are Citi (B&D), CA, HSBC, Mizuho, SocGen and SMBC Nikko.  Baa1/BBB+

   

• Korea Gas plans a USD 3y or 5y bond after meeting investors from June 23. Leads are BNPP, HSBC, JPM, Mizuho, Korea Development Bank and UBS.

   

• Brazil’s Cosan is preparing a USD 7y. Leads are Bradesco, BTG, Citi, ITABBA, JPM, MS, Santander and UBS.

   

• NongHyup Bank plans a 5y USD Social bond via BNPP, BofA, Credit Agricole, MUFG, SocGen and UBS.

   

• Tidewater is preparing a $250m 5y through DNB, Clarksons and Fearnley.

   

• EDC launched a $2bn 3y Global at swaps +25bs. Leads are BofA, Citi, CA, Daiwa and Scotia.