USD Swaps: USTs edge lower, flatter after mixed data; TIPS talk

• USTs edge lower and flatter after mixed data; TIPS talk 

• Callables and Formosas: BofA

• New issues: JFM

USTs edge lower and flatter after mixed data; TIPS talk

USTs yields are testing session highs and the curve is a touch flatter with the 10y at 4.23% (+4bps) in the wake of mixed data for initial claims (-10K to 230k), the Chicago Fed index (+0.12 versus -0.33 previously) and durable goods (-5.2%). Next up, the Fed’s Harker and Collins are due to speak followed by Chair Powell and a raft of Fed officials from the shadow of the Tetons on Friday.

IG issuance has paused again (euro deals have also slowed – see Total Derivatives EUR Swaps) and swap spreads are narrowly tighter at -21.50bps (-0.25) in 5y, -26.75bps (unch) in 10y and -67.00bps (-0.125) in 30y. Outright IRS flows are close to average in 30y but lacklustre everywhere else along the curve. Meanwhile after Nvidia’s stunning AI-driven results drove stocks higher yesterday, the Euro Stoxx has shed opening gains while Nasdaq futures are +1.0% pre-market. 

In inflation, TIPS breakevens are +1 to +2bps in early trading with the 30y breakeven at 2.356% (+1bp) and the 30y real yield is up a bp at 1.95% as the market awaits today’s $8bn 30y reopening.  SocGen previews the sale and is only “neutral” on the auction – at least while real yields remain below 2%, a level it sees as key for end-users. The bank explains:

• “The 30y real yield was recently at its highest since 2011, having risen 70bp since April before a possible short squeeze contributed to a large rally in Treasuries yesterday.

   

• “One contributor to the selloff over the past month has been worries over the increased supply of duration coming into the market. The Treasury’s quarterly refunding announcement signalled higher bond issuance over the next year but left the 30y and 10y TIPS auction sizes unchanged for now.

   

• “Heightened volatility at the long end of the Treasury curve and consternation about increasing supply of duration are reasonable explanations for a higher term premium, but after the large selloff of the past month, these factors may be adequately priced in.

   

   

• “30y TIPS reopenings have seen strong demand, and the Treasury declined to increase the size of the auction despite large increases in nominal issuance. All of these factors are positive indicators for Thursday’s auction, but on the other hand the weak demand from the  nominal 30y auction a couple weeks ago could dampen expectations, and yesterday’s rally makes the real yield level less attractive.”

   

• “The month-end extension could lead investors that track the TIPS index to favour duration. TIPS trading volumes appear to spike around month-ends with larger duration extensions.”

Callables and Formosas: BofA

• BofA sold a $18m 15y NC2 fixed callable (non-Formosa). The MTN matures Aug 2038, is callable annually from Aug 2025 and pays a 6.05% coupon. Announced Aug 23 and self-led.

New issues: JFM

• JFM is preparing a $750m 3y at swaps +62bps. Leads are Barclays (B&D), BNPP, Daiwa and GS.