USD Swaps: IG tops $50bn; USTs stay with bear flattening

Options swaps 24 Nov 2021
USTs stayed with the bear flattener while IG new issuance saw another $14.3bn, bringing the weekly total to $50bn. Swap spreads absorbed supply easily

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  • IG tops $50bn; USTs stay with bear flattening

  • New issues


    IG tops $50bn; USTs stay with bear flattening  

    Treasuries have stayed with the bear flattener, with yields up to 8bps higher, led by the 3y point. The 10y note yield is last 3.2bps higher at 4.298% while 2s10s is 2.6bps flatter at -72.9bps and 5s30s 6.6bps flatter at -7.3bps. Equities ended lower (DJIA -0.57%, S&P -0.71% and Nasdaq -1.06%).


    This afternoon, the Fed’s Beige Book release described “modest” economic growth with slower retail spending while in the housing sector, supply remains “constrained.” Job growth was “subdued” with nearly all districts reporting a slower wage growth outlook ahead. Price growth “slowed overall.”


    Swap spreads were largely steady in the face of continued supply, with roughly $9.5bn of today’s SSA and corporate issuance swap candidates ($5bn in SSA along with the FIG issuance of $4.5bn from Barclays). The supply did not appear to have much impact on spreads as they generally widened out amid lower overall volumes. Meanwhile, the notoriously illiquid 20y spread outperformed this afternoon, in part due to the long end outperformance in today’s bear flattening move, sources say.


    In total $14.38bn priced in IG new issuance ex-SSA across ten issuers. The weekly total stands $50.63bn, matching expectations for the entire week, with likely more to come tomorrow.


    Looking at recent swap spread price action, analysts at JP Morgan highlight that swap spreads have held “fairly steady” over the past month, due to several reasons:


      ”…It is likely that the aggressive selloff and bear-steepening of the past month was met with aggressive duration shedding by banks in the swaps market. With memories of the regional banking crisis of March still fresh, banks likely have a heightened sensitivity to reporting large AOCI drawdowns. We estimate that four largest banks likely came into this quarter with an aggregate AOCI sensitivity of $33mn/bp with respect to the 5y UST yield, and the exposure of the next ten banks is of comparable magnitude at $28mn/bp.”


      “Thus, as the selloff got underway early this month, it is a reasonable guess that banks would have ramped up their pay-fixed activity in the swaps market, which likely played some role in dampening the narrowing in swap spreads that would have otherwise been expected given the steepening in yield curves.”


    In the belly of the curve, JP Morgan favors “a mild and tactical narrowing bias” on swap spreads, as they have “exhibited a very consistent seasonal narrowing bias in the week following August month end, narrowing in each of the past five years albeit by a rather modest amount on average.”


    Moreover, as yields stabilize and pay-fixed flows start to abate, “it is likely that spreads are likely to retrace narrower in sectors that have widened the most in excess of fundamentals” and further, JP Morgan expects “the current OTR 10Y note to cheapen as it approaches its first reopening next month, which should lend additional support to a spread narrowing view.” In aggregate, JP Morgan sees the total impact of these factors warrant a tightening bias for 10y spreads.


    2s -10.75bps (-0.125bps), 3s -18.625bps (-0.25bps), 5s -22.5bps (+0.25bps), 7s -31.125bps (+0.25bps), 10s -29.375bps (+0.25bps), 20s -63.75bps (+1.375bps), 30s -67.25bps (+0.625bps).




    New issues


    • Australian gas supplier Santos Finance (Baa3/BBB-) plans a USD 10y after meeting investors from Sep 7.


    • Swedish Export Credit (SEK) is working on a 3y benchmark via GS, JPM, MS and RBC.  Aa1/AA+.  Price talk:  MS + 42bps area. Expected to price tomorrow.


    • ESM is working on a 3y benchmark through BofA, CA and TD.  Price talk: MS + 30bps area. Expected to price tomorrow.


    • CaixaBank launched a $2bn 2-part ($1bn 4NC3 fixed and $1bn 11NC10) via Barclays, BNPP, BofA, Caixa, JPM and MS. +195bps and +255bps. It dropped plans for the 4y NC3 FRN.


    • Barclays launched a $4.5bn self-led 4-part ($1.45bn 4NC3 fixed, $300m 4yNC3 FRN, $1.25bn 6NC5 and $1.5n 11NC10).  Baa1/BBB+/A. +175bps, SOFR +188bps, +205bps and +240bps.


    • Nippon Life launched a $930m 30y NC10 step-up sub (A3/A-) at 6.25%. Wia BofA, Citi, GS, JPM and MS.


    • Toyota Motor Credit priced a $1.75bn 3-part ($600m 2y, $400m 2y FRN and $750m 5y) at Treasuries +58bps, SOFR +65bps and +85bps. Leads are BofA, Citi, Lloyds, Mizuho and USB.


    • Idaho Power priced a $350m 31y FMB deal via JPM, MUFG and WFS.  A2/A-. +150bps.


    • Black Hills priced a $450m long 10y deal via MUFG and Scotia.  Baa2/BBB+/BBB+.   +190bps.


    • Marsh & McLennan priced a $1.6bn 2-part ($600m 10y and $1bn 30y) via DB, BofA and Citi.  A3/A-/A-.  +115bps, +135bps.


    • AIB Group PLC priced a $1bn 6y NC5 fixed-to-FRN benchmark via BofA, GS, Goodbody, JPM, MS and WFS.  A3/BBB.  +217bps.


    • Nestle priced a $1.5bn 3-part ($500m 5y, $500m 7y and $500m 10y) at Treasuries +57, +67 and +77bps. Leads are Barclays, Citi, DB, JPM and RBC. Aa3/AA-.


    • Yapi Kredi priced a $500m 5y Sustainability bond at 9.375% via BofA, Citi (B&D), ENBD, ICBC, ING and StanChart.


    • GATX priced a $300m long 10y deal via BAC and Citi.  Baa2/BBB/BBB+. +180bps.


    • TD Bank priced a $1.75bn 5y Covered Bond at swaps +92bps. Leads are Barclays, BMO, TD (B&D) and UBS.


    • AIIB priced a $2bn 3y Sustainability Global via BofA, BMO, Citi and Nomura. Via BMO, BofA, ING, Mizuho, MS, NatWest and WFC. Swaps +41bps.


    • IADB priced a $2bn 10y Global through Citi, RBC, TD and WFS. Swaps +48bps. 


    • Nordic Investment Bank priced a $1bn long 2y at swaps +19bps. Leads are CA, DB and JPM.


    • DP World priced a $1.5bn 10y Green Sukuk at around Treasuries +119.8bps. Leads are Citi (B&D), DB, DUBAII, ENBD, FAB, HSBC, JPM and StanChart.