Rare steepening ahead of minutes; Yankee FIG supply
Ahead of the FOMC minutes, the Treasury curve seeing a rare steepening bounce with front end yields down around 2bps while back-end yields are up around 3-4bps. The 10y note yield is last 3.6bps higher 3.896% while 2s10s is 5.8bps steeper at -102.7bps and 5s30s is 2.5bps higher at -30bps. Equities are mostly lower (DJIA -0.25%, S&P -0.08% and Nasdaq +0.06%). In data, factory orders were lower (+0.3% vs. expected +0.8%) while durable goods came in slightly higher (+0.7% versus +0.6% forecast).
The steepening today comes after a relentless flattening for nearly the entire month of June that culminated to a -108.5bps low in 2s/10s Monday. Swap spreads are also steeper with the belly underperforming amid mixed volumes. On the supply side, Yankee FIGs are in the new issuance market with Nomura announcing a 2-part 5y and 10y and BFCM coming with a 3-part 3y, 3y FRN and 5y..
Looking at the belly of the spread curve, analysts at JP Morgan see 5y spreads as “fairly stable” for the rest of the year – as has been the case “for the past nine months or so.” The bank’s model sees 5y swap spreads “already rather close to fair value” and thus “little scope for relative value convergence in this sector.”
That said, with the 2s/5s Treasury curve “expected to be fairly close to current levels” for the rest of the year according to its forecasts, JP Morgan sees “the only driver that is likely to trend in 2H23 is the dollar,” and in that regard it expects the USD “to strengthen versus a trade weighted basket of currencies.” Consequently, “both these factors appear likely to pressure swap spreads narrower in coming months,” the bank finds.
2s -8bps (unch), 3s -14bps (-0.625bps), 5s -21.75bps (-0.25bps), 7s -27.5bps (-0.25bps), 10s -25.625bps (-0.125bps), 20s -62.25bps (+0.5bps), 30s -66bps (+0.125bps).
- American Honda Finance is working on a $TBA 3-part (3y, 3y FRN, and 5y). Leads BofA, Citi, Mizuho and USB. A3/A-. Price talk +90bps, SOFR equivalent and +110bps areas.
- Nomura plans a $TBA 2-part (5y and 10y). Leads Nomura and BofA. Baa1/BBB+. Price talk +210bps and +240bps areas.
- BFCM is working on a $TBA 3-part (3y, 3y FRN and 5y). Leads Citi, MS, WFS and UBS. Aa3/A+/AA-. Price talk +155bps, SOFR equivalent and +180bps areas.
- IFC plans a $TBA 5y fixed. Leads BMO, BofA, JPM and Nomura. Aaa/AAA. Price talk SOFR MS +35bps area. Expected to price tomorrow.
- Shinhan Financial has mandated BNPP, Citi, JPM, Mizuho and Standard Chartered for a series of investor meetings starting Jul 10th ahead of a 5y 144a/RegS social note offering.