USD Swaps: Fresh yield highs; J-Hole previewed

Steepening 5 Jun 2020
UST yields tested fresh multi-year highs today before coming back. Banks tweak their views following the minutes and look ahead to J-Hole.

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  • Multi-year yield highs

  • Rate hike talk and J-Hole jitters: Banks

  • Callables and Formosas: Merrill Lynch, StanChart, JPM, NIB

  • New issues: DBJ


Multi-year yield highs

Yields at the long end remain just below multi-year highs at the time of writing with the 10y at 4.28% (+3bps) and the 30y at 4.40% (+5bps). The market awaits initial claims (seen falling 8K to 240K) and the Philly Fed index (expected to tick up to -10.4 versus -13.4) as bearish momentum weighs on USTs following the minutes yesterday. 5s/30s has steepened by 5bps although SOFRs are in the green with the reds 2 to 4 ticks stronger after losing ground on Wednesday (see Total Derivatives USD Swaps). Despite the rise in long end rates, Nasdaq futures are +0.2%.    


Swap spreads are mostly bid in the selloff with 2s at -11.00bps (-0.25), 5s are -22.00bps (+0.125), 10s are -27.50bps (+0.25) and 30s are -68.25bps (+0.50).  


Rate hike talk and J-Hole jitters: Banks

Meanwhile banks have tested their views against the new news in yesterday’s hawkish Fed minutes. Barclays continues to look for a final 25bps hike in November, BNP Paribas still reckons that rates have already reached their peak and BofA sees next week’s Jackson Hole conference as key:


  • Barclays: “We maintain our baseline forecast that the FOMC will proceed with a 25bp rate hike at the November meeting, following a ‘skip’ in September…We expect the FOMC to then maintain its rate unchanged until July 2024, as it patiently waits for inflation to come down, in particular in core services excluding housing…Weaker-than-expected CPI inflation prints in the last two months provide the FOMC with some time to fully assess the data, (but) we still see risks of a September hike, given the apparent strong momentum in activity.”


  • BNP Paribas: “At face value, recent strength in activity data fit with the change in the Fed staff’s view, which no longer anticipates recession later in 2023. However, it complicates the consensus view in the minutes that it will take a period of below-trend growth and some softening in labor market conditions to return inflation to the 2% target. In our view, the lagged effects of past monetary tightening are still set to weigh on activity later this year, which will allow the committee to forego further rate hikes.”


  • BofA: “Fed may sound hawkish (at Jackson Hole); stay underweight front end…The Sep & Nov meetings…cumulatively price 11.5bps of further tightening. We would not be surprised to see this pricing shift to 15bps if more balanced Fed rhetoric is adjusted due to recent strong data in favor of a clearer tightening bias…Position in Dec23 - Mar24 FOMC steepeners, which should benefit from a more hawkish Fed message and / or reiteration of higher for longer message. A further reduction of (2024) rate cuts (pricing) will likely result in a bear flattening of the UST curve…Overall, recent years have seen the UST curve bear steepen in response to Jackson Hole.”


    Callables and Formosas: Merrill Lynch, StanChart, JPM, NIB

    • Merrill Lynch sold a $50m 10y NC4 fixed callable Formosa. The EMTN matures Sep 2033, is callable annually from Sep 2027 and pays a 5.8% coupon. Leads are KGI and Sinopac. Announced Aug 16.


    • Standard Chartered sold a $20m 10y NC3 fixed callable (non-Formosa). The EMTN matures Aug 2033, is callable annually from Aug 2026 and pays a 6.09% coupon. Self-led and announced Aug 17.


    • JP Morgan sold a $50m 20y NC7 zero coupon callable (non-Formosa). The EMTN matures Aug 2043, is callable annually from Aug 2030 and has an estimated IRR of 5.435%. Self-led and announced Aug 15.


    • NIB sold a $50m 20y NC2 zero coupon callable (non-Formosa). The EMTN matures Aug 2043, is callable once in Aug 2025 and has an estimated IRR of 6.10%. Lead is Deutsche Bank and announced Aug 17.


    New issues: DBJ

    • DBJ is preparing a USD 3y Sustainability bond after meeting investors from Aug 17. Leads are Barclays, Citi, GS and Mizuho.


    • Continuum Green plans a $450m 3.5y Nc1.5 Green secured bond at around 9.625%. Leads are Citi, DB, ENBD, HSBC, JPM and StanChart.