USD Swaps: EGBs lead gains; BofA FICC up, MS down; Brevan trims long

Chart and prices 12 Aug 2020
EGBs led today's global rally after an unexpected shift by the ECB's Knot. BofA and MS report contrasting fortunes in FICC. Brevan trims its long.

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  • Bonds rally as euro hawk turns dovish

  • BofA FICC +7%yoy but Morgan Stanley -31%yoy

  • Brevan Howard Master Fund trims long and ends June flat USD rates

  • Callables and Formosas: HSBC, Kookmin

  • New issues


Bonds rally as euro hawk turns dovish

Treasury yields are 3-8bps lower driven by the belly and gains in EGBs after ECB hawk Klaas Knot unexpectedly left the door open to a pause in Eurozone rate hikes in September, albeit following a hike next week. Elsewhere, China’s plans to boost consumption and growth got a cool reception ahead of the release of the details later today. 5y USTs are 3.94% (-8bps) and SOFR futures are 7 ticks stronger in the reds ahead of data for retail sales (the Bloomberg consensus is +0.5% versus +0.3% for May) and industrial production (0.0% versus -0.2%)   


In swaps, spreads are a touch tighter ahead of potentially more FIG issuance, although outright volumes are mostly below-par except in the 10y bucket. 2y spreads are -10.125bps (-0.25), 5s are -22.00bps (-0.125), 10s are -27.00 (-0.25) and 30s are -67.25bps (-0.25).     


BofA FICC +7%yoy but Morgan Stanley -31%yoy

Bank of America today reported a better-than-expected +7%yoy increase in FICC revenues to $2.7bn in Q2 driven by a “strong” trading performance in currencies, emerging markets interest rates, and secured financing, as well as “improved” trading in credit and mortgage products, partially offset by weakness in commodities.


However, Morgan Stanley said today that its FICC revenues fell by -31%yoy to $2.6bn for the second quarter driven by declines across most products, with the exception of rates, as a result of “lower client activity and lower market volatility” compared with elevated levels a year ago.


In comparison, JP Morgan’s results last week showed a -3%yoy fall in Fixed Income Markets for the second quarter which it said reflected lower revenue in macro, largely offset by higher revenue in securitized products. Similarly, Citigroup reported that FIM fell -13%yoy, as strength in Citi’s rates franchise was more than offset by declines in currencies and commodities.


Brevan Howard Master Fund trims long and ends June flat USD rates

In hedge fund news, Bloomberg reports that two ex-Citadel traders have started their Ilex Capital fund with $1.85bn in capital, the largest launch of the year so far according to the newswire.


Elsewhere, Brevan Howard’s feeder fund, BH Macro, lost -0.51% in the first week of July and its performance slipped to -6.13% for the year to July 7, according to data released last week.


The loss occurred against the backdrop of a 23bps rise in 10y Treasury yields (reversed over the following week) in the first week of the month, a 1.2% fall in the S&P 500 and a 0.6% drop in the dollar index.


Unfortunately, the underlying Master Fund, with assets of $11.9bn, finished June DV01 flat USD and EUR rates, long dollar FX delta (mainly against Asian currencies) and delta long equity, credit, commodities and digital assets.


The Master Fund was modestly DV01 short rates overall in a shift from its previous small net long position at the end of May, which was mostly in USD rates.  But its end-June net short was concentrated in the long end of the JPY curve, where yields only rose by a few bps in early July.


Also, the fund was long the 2y area of the GBP curve, where yields jumped by around 12bps before falling back last week.     


Across asset classes the Master Fund cut its Interest Rate VaR (95%) to $24.6m in June from $30.7m in May, while Vega VaR fell slightly to $10.8m from $11.8m. However, Equity VaR rose to $15.5m from $10.3m and FX VaR rose to $11.6m from $9.6m. Credit VaR was little-changed at $4.4m and total cross-asset VaR was little-changed at $30.6m.  


Callables and Formosas: HSBC, Kookmin

  • HSBC sold a $50m 20y NC5 zero coupon callable (non-Formosa). The EMTN matures Jul 2043, is callable once in Jul 2028 and pays an estimated IRR of 5.27% coupon. Self-led and announced Jul 14.


  • Kookmin Bank sold a $50m 20y NC5 zero coupon callable (non-Formosa). The GMTN matures Jul 2043, is callable annually from Jul 2028 and has an estimated IRR of 5.21%. Lead is Nomura and announced Jul 18.


  • Credit Agricole sold an AUD2m 5y NC1 fixed callable Formosa. The EMTN matures Jul 2028, is callable once in Jul 2024 and pays a 5.62% coupon. Self-led and announced Jul 14.


New issues: IBRD, CDP

  • World Bank plans a $3bn 7y Sustainability Global. Leads are BMO, BofA, JPM and MS. Swaps +43bps.


  • CDP Financial is working on a USD 5y. Leads are Barclays (B&D), Citi, RBC and Scotia. Swaps +62bps.


  • SMBC Aviation is preparing a USD 10y in the region of Treasuries +220bps. Leads are Citi, CA, GS, JPM, RBC and SMBC Nikko (B&D).  


  • Shinhan Financial plans a USD 5y Social bond at around Treasuries +135bps. Leads are BNPP, Citi (B&D), JPM, Mizuho and StanChart.    


  • Panama is preparing a USD 10y via Morgan Stanley and Prival following investor calls. 


  • Mutual of Omaha plans a USD secured medium term note via JPM, Citi, GS and PNC.


  • Abu Dhabi Future Energy Company (Masdar) is preparing a $750m 10y Green  bond at around Treasuries +150bps. Via BNPP, Citi (B&D), FAB, HSBC, SMBC, SocGen and StanChart.


  • Saudi food and beverage company Almarai plans a USD 10y Sukuk in the region of Treasuries +155bps via Citi, DUBAII, HSBC (B&D), JPM and StanChart.


  • Dar Al-Arkan plans a USD long 5y Sukuk at around 8.5%. Leads are ADCB, ALKCAP, MASRAF, CBKD, ENBD, FAB, JPM, Masreq, SIB, StanChart (B&D) and WARBBK.


  • Wells Fargo yesterday priced a $1.725bn perp NC5. Self-led. Baa2/BB+/BBB. 7.625% area.