USD Swaps: USTs sink back toward unchanged ahead of 20y

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The early rally has fizzled as USTs work toward a concession ahead of the 20y. IG digests more supply from FIGs. BofA trims long. JPM 20y preview.

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  • USTs sink back toward unchanged ahead of 20y

  • New issues


    USTs sink back toward unchanged ahead of 20y

    Treasuries are off the earlier highs and sinking back towards unchanged as the impact of weaker overseas data has faded (see Total Derivatives).The 10y note yield is last 3.787% after spending some time below 3.75% with a couple of stabs down around 3.73%.


    Swap spreads are near unchanged to higher despite another slug of likely swapped FIG issuance – as Morgan Stanley has announced a large 4-part. Overall volumes are lower than average to start. Looking at the price action, one source believed that with the current level of low level of conviction in the market, “large players can push around the market” but without major data to back the moves up, the intraday trends don't stick. 


    As for outright duration or curve views, analysts at BofA continue to prefer an outright long duration view versus a curve steepener based on the continued view “that the market path of inflation near term appears overly optimistic vs forecasts” and while last week’s CPI print “offers encouragement,” BofA still “see risks that inflation proves stickier than market pricing.” That said, BofA finds after last week’s rally, it sees the 10y better aligning with fair values and thus it favors reducing the risk of the position, but overall it still retains “the structural view for lower UST rates medium-term.”


    Meanwhile ahead, of the $12bn 20y reopening, analysts at JP Morgan note that:


      ”The June auction cleared 1.7bp through pre-auction levels, as the share of end-user demand ticked up by 3.5%-pts to 92.2%, the second-highest share on record” while “notably the investment manager share of demand rose 5.4%-pts to 78.9%, the highest since July 2022, while foreign investor takedown declined a further 2.8%-pts to 10.6%, the least since November 2022.” 


      “After traversing a 25bp range, 20-year yields have risen 7bp since the last auction and, at these levels, would represent the highest yielding auction since October 2022. The 20-year sector has underperformed the wings over the past two weeks, and furthermore appears slightly 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).”


    Thus, “given outright and relative valuations,” JP Morgan expects the auction “will likely be digested smoothly.”


    2s -9.875bps (+0.75bps), 3s -13bps (unch), 5s -22.125bps (+0.125bps), 7s -28.75bps (+0.125bps), 10s -27.5bps (-0.125bps), 20s -64bps (+0.375bps), 30s -67.375bps (+0.125bps).



    New issues  


    • Morgan Stanley plans a $TBA 4-part (2y, 2y floating, 6y NC5 and 11y NC10). Self-led.  Aa3/A+/AA- on 2y fixed and FRN. A1/A-/A+ on 6y NC5 and 11y NC10. Price talk +90bps, SOFR equivalent, +165bps and +185bps.


    • Heico is working on a $TBA 2-part (5y and 10y). Leads BofA, TSI and WFS. Baa2/BBB. Price talk +180bps and +220bps area.


    • Province of Manitoba plans a $TBA 10y. Leads CIBC, NBCFM, RBCCM and TD. Aa2/A+. Price talk SOFR MS +75bps area. Expected to price tomorrow.   


    • Kepco is preparing USD 3y and/or 5y Sustainability bonds via BofA, Citi, JPM, Mizuho and UBS.


    • Mirae Assset Management plans a USD 3y at around Treasuries +295bps. Leads are Citi (B&D), HSBC, Mirae and StanChart.


    • Resorts Las Vegas is preparing a USD 7y at around 8.9%. Leads are Barclays, Citi (B&D), DBS, DB and JPM.


    • Mutual of Omaha plans a $300m 3y FA backed. Leads JPM, Citi, GS and PNC. A1/A+. Price talk +165bps area.


    • Concentrix is working on a $TBA 3-part (3y, 5y and 10y). Leads BofA  and JPM. Baa3/BBB/BBB. Price talk +250bps, +275bps and +325bps areas.