USD Swaps: Central bankers stick to playbooks; 7y auction view

Fed sunny 9 Jun 2022
USTs remains in the green as heads of the world’s biggest central banks stick to their playbooks at today’s ECB conference. JPM's 7y auction view.

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  • Central bankers stick to playbooks; 7y auction view

  • New Issues


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    Central bankers stick to playbooks; 7y auction view

    Fed Chair Powell, ECB President Lagarde, BOE’s Bailey and BOJ’s Ueda all seem to be having some nice and pleasant banter today at the ECB’s Sintra monetary conference. And thus far, no market moving tape bombs have been lobbed as the central bank presidents all seem to be sticking to their well-advertised playbooks.


    Against this backdrop, Treasuries have come off their earlier highs but still remain in the green (~ 1-3bps).  The benchmark 10y note yield is last 1.5bps lower at 3.756% after a brief test of 3.72% earlier.  On the curve, 2s10s spread is 0.9bps wider at -98.6bps while the 5s30s spread is 2bps wider at -16.8bps.


    In SOFR-space, red SOFR futures are currently posting 3 to 4 tick gains while SOFR swaps are narrowing mixed with the spread curve steepening amid above average activity in all but the 3y and 5y tenors.  In the backdrop, a lone new IG deal from Standard Chartered that hit the tape earlier has been joined by a $300m 3y deal from Corebridge Global Funding amid a largely neutral risk tone today (Dow -0.49%, S&P 0%, Nasdaq +0.44%).


    Ahead, 1pm Treasury will auction $35bn 7-year notes, unchanged from last month. After yesterday’s $43bn 5y note auction tailed 0.4bps and drew a soft 2.52x bid-to-cover.(see Total Derivatives).  Heading into today’s supply, strategists at JP Morgan don’t see much of a problem taking the issue down and they highlight the following:


      ”… The May auction cleared 0.8bp through pre-auction levels as the share of end-user demand increased 4.4%-pts to 89.6%. Auction allotment data shows investment manager take-down rose 5.6%-pts to 77.0% while foreign demand remained roughly unchanged.


      “…Since the April auction, 7-year yieds have risen 8bp. Along the curve, the 7-year sector appears somewhat rich versus the wings after adjusting for the level of yields and the shape of the curve, but importantly the sector has cheapened over the last week. Meanwhile the WI roll opened at -1.875bp, somewhat rich to our estimate, and has remained unchanged.


      “…Given cheap outright and relative valuations, we think (today’s) auction should be digested smoothly.”


    Currently, SOFR swaps -  2s -6.5bps (-0.5bps), 3s -13.375bps (-0.5bps), 5s -22.375bps (+0.5bps)*, 7s -28.375bps (+0.25bps), 10s -25.75bps (+0.625bps), 20s -63.25bps (+0.5bps), 30s -65.5bps (+0.25bps).


    * adjusted for the 0.5bps roll.



    New issues

    • Corebridge Global Funding is working on a $300m 3y deal via BofA and DB.  A2/A+.  Price talk: +165bps area.


    • Standard Chartered plans USD 4y NC3, 4y NC3 FRN and 11y NC10 bonds at around Treasuries +215bps, SOFR equivalent and +285bps, respectively. Via BNPP, GS, MS, StanChart (B&D) and TorDom.