USD Swaps: JOLTS data jolts USTs higher; 7y auction preview

Bond chart 30 Jan 2023
Softer-than-expected JOLTS jobs and consumer confidence data have jolted USTs into bull-steepening mode. JPM previews the 7y auction.

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  • JOLTS data jolts USTs higher; 7y auction preview

  • New Issues


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    JOLTS data jolts USTs higher; 7y auction preview

    Today’s latest batch of data has decidedly jolted the rates market in favor of the bond market bulls.  To be sure, JOLTS jobs openings came in at a much softer than expected 8,827k (versus 9,500k Bloomberg consensus) with a 417k downward revision to the prior month. Similarly, the Conference Board consumer confidence data painted a bleaker-than-expected picture with a headline print of 106.1 (versus 116 Bloomberg consensus) and a 3-point downward revision to the prior month.


    Post-data, Treasury yields have ricocheted sharply lower in a front-end-led move that saw that 2y note yield slice back down through the 5% level.  Currently, the 2y note yield is last 12bps lower at 4.884% while the 2s10s spread is 4bps wider (roll-adjusted) at -66.1bps. 


    Meanwhile, bad news has once again spelled good news for equities where the major domestic indices are all posting gains (Dow +0.36%, S&P +0.78%, Nasdaq +1.41%).  And amid this buoyant risk backdrop, some IG issuance has hit the tape, ahead of which swap spreads are mixed amid above-average SOFR volumes .


    Ahead, Treasury will close out this week’s truncated supply cycle with today’s $36bn 7-year notes - $1bn larger in size from last month’s auction – after yesterday’s $45bn 2y note and $46bn 5y note auctions were easily digested.  Heading into today’s supply, strategists at JP Morgan believe that today’s auction should see a similar fate to yesterday auctions and they highlight the following:


      ”…The July auction cleared 1.4bp cheap to pre-auction levels as the share of end-user demand declined 6.2%-pts to 85.7%. Auction allotment data shows this decline was concentrated among investment managers, whose take-down fell 12.6%-pts to 68.5%, while foreign demand rose 5.3%-pts to 14.9%, the most since January 2023.


      “…Since the July auction, 7-year yields have risen 23bp and, at these levels, would represent the highest-yielding auction for this sector in over a decade. Along the curve, the 7-year sector appears somewhat cheap versus the wings after adjusting for the level of yields and the shape of the curve. Meanwhile the WI roll opened at -1.0bp, somewhat rich to our estimate, and has since cheapened to -0.625, more than would be implied by the erosion of carry.


      “…Given cheap outright and relative valuations, we think (today’s) auction should be digested smoothly.”


    SOFR swaps v-  2s -8.125bps (unch)*, 3s -16.375bps (-0.375bps), 5s -21bps (unch)**, 7s -29.87bps (+0.375bps), 10s -27bps (unch), 20s -63bps (+0.125bps), 30s -6bps (-0.125bps).


    * adjusted for the 4.2bps give.

    ** adjusted for the 1.9bps give.



    New issues

    • 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.