USD Swaps: Banner day for IG issuance; Refunding ahead

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IG new issuance priced $19.5bn and sent the July MTD to an above forecast $88.2bn total. JP Morgan looks at refunding and sees more duration ahead.

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  • Banner day for IG issuance; Refunding ahead 

  • New Issues


    Banner day for IG issuance; Refunding ahead   

    Treasuries are back to near unchanged with yields under 1bp change on the day. The 10y note yield is 3.963% or 0.6bps higher on the day while 2s10s is 1.2bps steeper at -92bps and 5s30s unchanged at -15.7bps. The Fed released the latest Senior Loan Officer Opinion Survey (SLOOS) this afternoon and it showed tightening across the board and further tightening expected ahead (see link for report).


    Equities ended mixed (DJIA +0.28%, S&P -0.13% and Nasdaq -0.21%) while TIPS breakevens saw a flattening move with the front end and belly 1-4bps higher and the back end 0.5 to 1bp lower.


    Meanwhile, month end has gone out with a bang on the lG new issuance side as $19.5bn priced, and thus boosting the July total above the expected $75bn to $88.225bn. It was the largest single day of IG issuance since June 5th.  Swap spreads saw a steepening move amid lower volumes across the board.


    Elsewhere, going into the refunding announcement on Wednesday, analysts at JP Morgan see higher deficits ahead. “The federal budget deficit was $1.4tn in the first 3 quarters of FY23” and “extrapolating the current trend based on historical deficit seasonal trends would leave the deficit tracking $1.8tn, well in excess of our $1.48tn forecast.”


    With this backdrop, JP Morgan expects Treasury to announce “$796bn in net marketable borrowing in the July-September quarter, bringing the TGA up to $600bn by the end of September, and $705bn in net marketable borrowing in the October-December quarter, leaving the TGA at $650bn by year-end” assuming “a somewhat narrower deficit in the last quarter of FY23 than what’s implied by Treasury’s latest projections from May.”


    Ahead of Wednesday’s refunding announcement, JP Morgan projects Treasury “will begin a series of increases to coupon auctions” as “the current coupon auction schedule is insufficient to meet Treasury’s financing needs in the years ahead.” While near-term “Treasury can and will continue to lean on T-bills to bridge this gap,” JP Morgan points out “this is clearly not a long-term solution, given large financing needs in FY24 and beyond.”


    Thus, JP Morgan expects increases in coupon auction sizes “by $2bn at each new auction across most sectors, starting next month.” Going into 2024, away from bill issuance, JP Morgan expects that “duration supply should increase significantly in 2024: we project gross duration supply excluding Fed purchases to total $3,058bn 10-year equivalents in 2024, well above the levels that prevailed in recent years.”


    2s -8bps (-1.5bps), 3s -13.75bps (-1.5bps), 5s -20.125bps (-0.375bps), 7s -27bps (unch), 10s -25.75bps (-0.375bps), 20s -61.875bps (+0.625bps), 30s -64.875bps (unch).



    New Issues

    For a complete review of issuance over the past week, please see USD New Issues.


    • Lloyds Bank priced a $2bn 2-part ($1.5bn 4y NC3 fixed and $500m 4y NC3 FRN). Leads Barclays, HSBC, JPM and Scotia. A3/BBB+/A.  +148bps and SOFR +156bps.


    • Santander launched a $3.5bn 2-part ($1.5bn 5y senior pref and $2bn 10y sub). Leads  BofA, Citi, GS, HSBC, JPM, Jefferies, MS, RBC, Santander, TD and WFS. A2/A+/A on 5y and Baa2/BBB+/BBB on 10y. +140bps and +295bps respectively.


    • Mercedes Benz priced a $3.5bn 5-part ($700m 2y, $400m 2y FRN, $750m 3y, $900m 5y and $750m 10y). Leads BNPP, Citi, JPM, Mizuho, MUFG, Santander and SMBC. +52bps, SOFR +57bps, +72bps, +95bps, +115bps.


    • B.A.T. International Finance priced a $5bn 5-part ($1bn 5.5y, $1bn 7y, $1.25bn 10y, $750m 20y, $1bn 30y). Baa2/BBB+. +175bps, +225bps, +245bps, +285bps, +305bps.


    • State Street priced a $1.5bn 2-part ($1.2bn 3y fixed and $300m 3y FRN). Lead MS. A1/A/AA-. +75bps and SOFR +84.5bps.


    • Invitation Homes Operating priced a $88m 2-part ($450m 7y and $350m 10y). Leads Citi, JPM and MS. Baa3/BBB/BBB. +158bps and +173bps.


    • Norfolk Southern priced a $1.6bn 2-part ($600m 7y and $1bn long 30y). Leads BofA, MS and WFC. Baa1/BBB+. +102bps and +137bps.


    • Xcel Energy priced a $800m 10y. Leads Barclays, BofA, PNC and WFS. Baa1/BBB+/BBB+. +153bps.  


    • Consumers Energy priced an upsized $500m long 5y FMB. A1/A. Leads MUFG, RBCCM and WFC. +75bps. Upsized from $350m.


    • GS Caltex priced a $300m 5y. Leads CA, HSBC, JPM and Mizuho. Baa1/BBB.  +128bps.