USD Swaps: Seesawing; Bear flattening; IG new issues active

Arrow up and down Oct 2022
USTs bandied about after testing the upper end of the rate range early on and bear flattened. IG new issuance priced over $11bn across 6 issuers.

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  •  Seesawing; Bear flattening; IG new issues active  

  • New issues


    Seesawing; Bear flattening; IG new issues active   

    Treasuries seesawed lower then higher and back down into the afternoon. The 10y note yield is last 4.185% or 2.7bps higher on the day after seeing a range of 4.15% to 4.212%. The curve bear flattened with the 2y the worst performer with 2s10s last 3.4bps flatter at -77.9bps and 5s30s 4.3bps lower at -7.4bps. Equities ended the session higher (DJIA +0.08%, S&P +0.4% and Nasdaq +1.05%).


    A decent amount of IG new issuance priced with the largest a Bank of America NA $5bn 4-part. In total $11.58bn priced across seven issuers. Swap spreads steepened versus the underlying flattening, with the front end under pressure while the long end widened amid above average volumes best seen in the back end.


    Looking at the recent selloff, analysts at Barclays believe the bond market selloff “reflects a confluence of factors” including “expectations of higher notes/bond issuance amid a worsening fiscal profile, spillover from policy changes in Japan, and a reassessment of the medium-term expected policy rate” while it views the ratings downgrade as “unlikely to have any impact on the US bond markets.”


    Barclays had previously cautioned against “expecting the typical end-of-cycle bond market rally as initial conditions are not conducive to a large rally” and it continues to see this. From a levels perspective, “yields do not look stretched to us as the economy is more resilient than expected, which points to a very gradual decline in the policy rate to a higher neutral rate, and investors need to be paid a term premium as well, which is higher given recent developments,” the bank assesses.


    With this backdrop, Barclays recommends shorting 2y USTs as it highlights that “the latest inflation print showed disinflation continues.” That said, “albeit given the idiosyncratic drivers, risks are that it runs out of steam” and the “elevated level of the short-run neutral rate suggests policy may not be tight and that consensus is being pessimistic about growth prospects,” it judges. ”All of these suggest risks to the path of policy are to the upside,” Barclays concludes.  


    2s -11.75bps (-0.875bps), 3s -15.875bps (-0.375bps), 5s -22.375bps (-0.125bps), 7s -30bps (+0.25bps), 10s -27.5bps (+0.625bps), 20s -63.375bps (+0.625bps), 30s -67.25bps (+0.25bps).



    New issues

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


    • PBF Energy is preparing a $500m 7y note due 2030. Leads are BofA, Barclays, Citi, GS, MUFG, PMC, Rabo, REG SMBC, Truist, USB and WFS.  Price talk 7.875% to 8%.


    • Continuum Energy Aura Pte (CGEL) plans a $450m 3.5y Secured Green bond. Leads are Citi, DB, ENBD, HSBC, JPM and StanChart.


    • Chile Electricity Lux MPC launched a $784.25m 9.5y (WAL 6y) fixed benchmark. A2/A. Leads GS, ITAB and JPM. +165bps.


    • Goldman Sachs Group priced a $1.5b n 1000k par perp NC5. Ba1/BB+/BBB-. 7.5%. Self-led.


    • Bank of America NA priced a $5bn 4-part ($2bn 2y, $400m 2y FRN, $2bn 3y and $600m 3y FRN). Self-led. Aa1/A+/AA. +70bps, SOFR +78bps, +90bps and SOFR +102bps.


    • FiServ priced a $2bn 2-part ($700m 5y and $1.3bn 10y). Leads BofA, PNC, TFC, WFC. +108bps and +155bps.  


    • Entergy Arkansas priced a self-led $300m 10y FMB. A2/A. Leads KeyBanc, Citi, JPM and Steph. +120bps.


    • Huntington Bancshares priced $1.25bn 6y NC5 at +185bps. Leads are Citi, HBAN, JPM and MS (B&D). Baa1/BBB+/A-.


    • Otis priced $750m 5ys through BofA, Citi and GS. Baa1/BBB. +98bps.