USD Swaps: Belly leads losses after mixed bag of data

Dollar bills
The belly remains the weakest area of the UST curve following mixed data showing firm retail sales but weak manufacturing confidence.

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  • Belly adds marginally to losses after mixed bag of data

  • More jobs than first thought? Barclays

  • Callables and Formosas: KDB

  • New issues


 Belly adds marginally to losses after mixed bag of data

UST yields have edged off the session highs following stronger than expected retail sales (+0.7% versus the +0.4% Bloomberg consensus) as a sharply weaker Empire Manufacturing survey (-19.0 versus -1.0 expected and +1.1 last month) tempered the selloff to leave Treasury yields 3-6bps higher across the curve with the 10y now 4.25% (+6bps).


Losses for S&P futures (-0.6%) and earlier rate cuts by the PBOC had little impact and SOFRs were steady in the whites but as much as 10 ticks lower in the greens shortly after the data.


Still, USTs continue to outperform gilts, which are bear-flattening after UK average earnings growth accelerated to a BOE-unfriendly 8.2%, 80bps higher than the consensus expected.


In swaps, with USTs weaker and little IG issuance on the screens, swap spreads are -11.50bps (+0.125) in 2y, -22.5bps (unch) in 5y, -27.5bps (+0.125) in 10y and -67.25bps (unch) in 30y.


Ahead, BNP Paribas favours shorts in the belly of the USD curve. The bank finds that its gauge of positioning is at its lowest 2023 levels consistent with yields reversing lower. However,  the bank warns that “volatility has shifted out of the curve and has recently been asymmetrically skewed towards larger selloff moves than rallies, particularly in the 5-10y sector.” Hence BNPP believes a sustained rally requires “more evidence of cracks in hard/labor market data” that “has yet to be seen”. It recommends staying short the belly on the 5s/10s/30s fly and remaining short 2y swap spreads.


More jobs than first thought? Barclays

An “upside surprise” may be brewing for next week’s benchmark revisions to the non-farm payrolls data, according to economists at Barclays today, even as some in the market judge that measured employment gains are overstated.


The bank concludes: “Taking a close look at available estimates, we think the opposite may be true. Market expectations that next week's preliminary benchmark revisions will point to downward revisions to the jobs estimates may be disappointed.”


Callables and Formosas: KDB

  • Korea Development Bank sold a $50m 20y NC5 zero coupon callable (non-Formosa). The GMTN matures Aug 2043, is callable annually from Aug 2028 and has an estimated IRR of 5.50%. Lead is GS and announced Aug 14.


New issues

  • PBF Energy yesterday priced a $500m 7y NC3 note 7.875% due 2030. Leads are BofA, Barclays, Citi, GS, MUFG, PMC, Rabo, REG SMBC, Truist, USB and WFS.


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


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