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USTs mixed and flatter; T-bills eyed; 3y note auction preview
With the highly anticipated June CPI report set to hit the tape tomorrow morning, today may shape up to be the quiet before the potential storm. Indeed, amid a void of major economic data today, the major domestic equity indices are modestly in the green (Dow 0.43%, S&P +0.24%, Nasdaq +0.22%) while Treasuries remain off their overnight highs with yields currently mixed as the curve remains flatter.
The benchmark 10y note yield is last 1.2bps lower at 3.982% while the 2s10s spread is 3.75bps narrower at -90.75bps. At the very front-end, T-bills are anywhere from 1 to 4bps higher in yield with Treasury today calling for Large Position Reports (see here) from entities that had positions exceeding $10.2bn in the June 8th bills as of Friday, April 28th to examine the volatile period around the debt-ceiling stand-off – notably the first time Treasury has ever requested such positioning reports on a T-bill.
Meanwhile, in SOFR-space, white SOFR futures are posting 0.45 to 2 tick losses white the red further out are posting 2 to 2.5 tick losses. And SOFR swap spreads are all lightly offered amid above average activity overall ahead of potentially swaps IG deals from JBIC, ADCB and KfW today.
Looking ahead, Treasury kicks off this week’s refunding with today’s $40bn 3-year note auction at 1pm, unchanged in size from last month. Heading into today’s supply, strategists at JP Morgan believe that the auction should garner decent demand from end-users and they highlight the following:
- ”…The June 3-year auction cleared 0.2bp cheap to pre-auction levels as end-user demand declined 3.7%-pts from its local highs to 83.3%. More granularly, investment manager takedown ticked up slightly to 70.1%, the highest on record, while foreign allotment decreased to 11.1%, the lowest since February 2020.
“…Since the last auction, 3-year yields have risen 35bp on the back of resilient economic data, and as expectations of the terminal rate have moved higher and the timing of terminal has been pushed out further. The roll opened at -1.5bp, significantly cheap to our fair value expectations, and continues to trade at that level.
“…From a relative value perspective, the sector appears slightly rich on the curve once adjusting for the level of rates and the shape of the curve. Nonetheless, with yields nearing their cycle highs, we think tomorrow’s auction is likely to be well received.”
SOFR swaps – 2sd -7.75bps (-0.5bps), 3s -14.5bps (-0.5bps), 5s -22bps (-0.5bps), 7s -27.75bps (-0.125bps), 10s -25.875bps (-0.375bps), 20s -62.875bps (-0.375bps), 30s -66.875bps (-0.375bps).
- Cooperative Rabobank NY is working on a 2y fixed/FRN benchmark via BofA, JPM, MS, RABO and TD. Aa2/A+/AA-. Price talk: +87.5bps area, SOFR equivalent.
- John Deere is working on a 5y benchmark via BofA, Citi, DB, RAM and RBC. A2/A/A+. Price talk: +100bps area.
- Uruguay is working on a 10y benchmark via BofA, Citi and ITABBA. Baa2/BBB+/BBB. Price talk: 10% area.
- Pacific Life GF II is working on a 5y FA-backed benchmark via DB, JPM and MS. Aa3/AA-/AA-. Price talk: +145bps area.
- ADCB plans a USD 5y at around Treasuries +130bps via ADCB, Barclays, DB, ENBD, JPM (B&D) and Mizuho.
- KfW plans a $TBA 10y Global. Leads BMO, BNPP and Citi. Swaps +45bps.
- Korea Hydro & Nuclear Power is preparing a USD Green 5y in the region of Treasuries +120bps. Via BofA, Citi, CA, SocGen and StanChart.
- Hanwha Q Cells Americas plans a guaranteed USD 5y Green Bond after investor meetings arranged by BofA, Citi, CA and KDB starting on July 12.
- JBIC launched a $1.5bn 5y Global. Leads are Barclays (B&D), BofA, Goldman and Daiwa. A1/A+. Swaps +69bps.