USD Swaps: Front-end outperforms pre-NFP

Dice two 6s 23 Nov 2020
Sep 1 is always a date that carries a whiff of dread about it. This year that is exacerbated by the NFP release. USTs are keeping things tight.

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  • Front-end outperforms pre-NFP

  • BNPP: NFP forecast supports steepening

  • Callables and Formosas: BNPP ZC

  • New issues


Front-end outperforms pre-NFP

September the first is always a date that carries a whiff of dread about it. Much as market participants will talk up their appetite for the new season’s oh-so welcome challenges, it is just too close to the joy of August holidays for such enthusiasm to be remotely believable.


Today’s September 1 has the added sting of unwelcome reality in the form of the upcoming August NFP headline (forecast +170K versus +187K in July). With even the USD fixed income market highly volatile by historic standards (10y yields have traded in an almost 100bps range since mid May) most UST traders would welcome an on-target figure to set a calm tone for the busy months ahead. But NFP has a long record of occasionally surprising.


So far today the approach of the data has been met calmly, with a modest steepening in anticipation of a continued normalizing of NFP headlines since the January spike of +472k. About 90 minutes before the NFP release 2y UST yields are -1bp at 4.85%, the 10y is little-changed at 4.105% and the 30y is +1.5bps at 4.225%.


Swap spreads have mostly edged a little more positive across the curve, reflecting the complete absence of issuance today ahead of NFP. Currently the 2y spread is unchanged at -9.875bps, the 5y is steady at -22bps, the 10y is +0.125bps at -28bps and the 30y is +0.25bps at -67bps.


With European government bond markets also lightly mixed and keeping their cards close to their chests, any surprise result could have an exaggerated impact in still-thin fixed income markets, while also setting the tone for the month ahead.



BNPP: NFP forecast supports steepening

Strategists at BNPP this morning offered up their final forecasts for today’s mood-setting NFP outturn. It suggests that “recent employment indicators including job openings and consumer surveys show labor demand is cooling. For the Fed, further softening would give officials greater confidence that inflation is durably headed back to 2%, and lean against the need to lift rates further....We project nonfarm payroll growth at 140k (down from 187k prior) and a steady unemployment rate at 3.5%.”


The bank continues: “Our modestly below consensus (vs 170k Bloomberg consensus) projection for payrolls would likely support modest bull steepening risk, with the market likely paring the already limited hike pricing for the next couple of meetings,” it concludes.


Callables and Formosas: BNPP ZC 

  • BNP Paribas sold a $50m 20y NC7 zero coupon callable (non-Formosa). The EMTN matures Sep 2043, is callable every 5y from Sep 2030 and has an estimated IRR of 5.96%. Self-led and announced Sep 1.


New issues

  • Quebec last night priced a $1.5bn 10y Global at swaps +72bps. Leads were BofA, BMO (B&D), HSBC, NBC and TorDom.