USD Swaps: USTs edge lower; Spread view

Chart 24 Nov 2021
USTs are edging lower ahead of the data and the 7y auction today. Elsewhere, banks look at the swap spread curve.

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  • USTs edge lower

  • US sector invoice spread long to hedge 2y short: Citi

  • New issues: KfW


USTs edge lower

Treasuries have pared early gains with yields edging higher across the curve and the 10y now 4.22% (+2bps) after testing 4.17% earlier in the session. Ahead, consensus for the JOLTS data is 9500K versus 9582K last month, with the report likely to underline that the labor market remains tight, while Chair Powell’s favored openings-to-unemployed ratio is forecast by economists at BNP Paribas to be roughly steady around 1.6. Later, the Conference Board’s report will show how consumer confidence is holding up in the face of rising interest rates and softer asset prices, while Treasury will sell $36bn in 7y notes.  In the news, the latest JP Morgan Treasury Client Survey drew a mixed picture with the 'All Client' net long falling to 17% in the week to Aug 28 from 20%, but the 'Active Clients' net long jumped to 11% from 0% over the same period.  


Elsewhere, spreads are narrowly mixed with only a few new USD deals despite a sharp rise in euro-denominated issuance (see Total Derivatives EUR new issues). Spreads are -21.125bps in 5y, -27.25bps (-0.25) in 10y and -66.25bps (-0.50) in 30y, with outright swap volumes highest in the 5y to 7y bucket.


US sector invoice spread long to hedge 2y short: Citi

Citigroup strategists this week see the long end of the spread curve offering some value as a hedge to a short spread position in the front end. Fair value for 2y spreads is estimated by Citi to be around -17bps by year end, with the threat of central bank intervention by China and/or Japan as an additional negative factor for shorter-dated spreads. The bank explains:


    “The US sector has cheapened up dramatically (e.g. on the spread fly) over the past few weeks. This does not seem to be driven by idiosyncratic pressure from off-the-run 20y paper, which has been relatively stable”


Citi acknowledges that the driver for US spreads’ cheapness is “not entirely clear,” although it notes that the US point is “frequently cited as a popular one for CTAs, which my be shorting the long end once 30s passed 4% a few weeks ago.” Citi continues:


    “Typically, large risk offs result in WN cheapening more than the US contract, which has not been the case here…It is possible that fast money accounts are paying in the long end, perhaps via steepeners, which has supported long end spreads. Pension fund demand may be keeping a bod to the long-end as well. We think that investors who agree that shorting belly spreads is an attractive point on the curve, may want to pair such as trade with a long invoice position as a light hedge”.  


New issues: KfW, Allianz

  • KfW plans a USD 3y Global at around swaps +27bps. Leads are Barclays, Ms and RBC.


  • Allianz is preparing a USD 30y NC10 Tier 2 bond through BofA, BNPP, Citi, CA and HSBC after meeting investors from Aug 29.  


  • LG Energy plan USD 3y and/or 5y Green bonds after meeting investors from Aug 30. Leads are BofA, Citi, MS, StanChart and KDB.


  • Japan’s Aozora Bank is preparing a USD 3y Green bond after meeting investors from Aug 29. Leads are Citi, GS and MS.