USD Swaps: USTs shift steeper; Rates market assessment

Bond chart 30 Jan 2023
The UST curve is steepening, as the impact morning’s better-than-expected data wanes. SocGen’s rates market assessment.

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  • USTs shift steeper; Rates market assessment

  • Formosas & ZC callables

  • New Issues


    Click here for SDR USD IRS trades.


    USTs shift steeper; Rates market assessment

    Treasury yields are last pushing lower by up to 5bps in the front end. This morning saw better-than-expected data (i.e. jobless claims, unit labor costs) with the curve now bending steeper after an initial knee-jerk flattening move. The benchmark 10y note yield is last unchanged at 4.28% while the 2s10s spread is last 4bps wider at -70.2bps. 


    Meanwhile, the major domestic equity indices are mixed (Dow +0.05%, S&P -0.39%, Nasdaq -1.05%) with technology shares underperforming in the wake of headlines that China plans to expand its Apple iPhone ban for certain sensitive government agencies.  


    SOFR futures are now 3 to 5.5 ticks firmer in the reds while SOFR swap spreads are narrowly mixed with the spread curve flattening against the steepening in underlying rates amid below average activity in all tenors this session. In the backdrop, IG issuance is lightening up with a smaller number of issuers today looking to add to the over $50bn that has already priced this week.


    Elsewhere, in their latest assessment of the broader outlook for the rates market leading into today, strategists at SocGen posit the following:


      ”…Dust settled during a quieter session overnight after the ambush yesterday in bonds and (EM) FX following the US services ISM. Thinking about the November FOMC, in September, is moving up the priority list of investors and corporate Treasury departments as tactics for the final quarter and budget plans for next year are being drawn up.


      “…So far, so September: higher yields and stronger USD/G10 and EM to boot. Higher ISM prices paid (and petrol prices) skew the risk higher for US CPI, but that's a conversation markets will have next week Wednesday, the day before the ECB decides to pause or hike.


      “…Levels are looking increasingly technically stretched, especially in FX, but the issuance rush and positioning for next week should limit scope of mean reversion in yields and could keep EM FX volatility bid . The jump in manufacturing ISM prices series last week (below 50) was a warning sign and yesterday’s bounce in services prices, to a four-month high of 58.9, means inflation pressures are picking up rather than relenting.


      “…The probability of another 25bp Fed hike rose to just over 50%, causing the UST 2s/10s curve to shift back to flattening mode. The 10y UST stalled at 4.30%, within 6bp of the cycle high. The debate whether bonds are a buy here, or will plumb new lows (yield highs), rumbles on.”


    SOFR swaps – 2s -10.625bps (+0.375bps), 3s -18.625bps (unch), 5s -22.125bps (+0.375bps), 7s -30.75bps (unch), 10s -29.13bps (+0.125bps), 20s -64bps (-0.125bps), 30s -67.375bps (-0.125bps).



    Formosas & ZC callables

    • DZ Bank sold a $50m 20y NC7 Green zero coupon callable (non-Formosa). The EMTN matures Sep 2043 and is callable annually starting Sep 2030. Self-led. Estimated IRR 5.8%. Announced Sep 6.


    • Merrill Lynch sold $20m 10y NC4 FRN callable Formosa. The EMTN matures Sep 2033 and is callable annually starting Sep 2027 and pays 1y ICE SOFR +145bps. Lead E Sun. Announced Sep 7.



    New issues

    • Braskem is working on a 7y benchmark via Citi, CA-CIB, ITUA, MS, Santander and SMBC.  BBB-/BBB-.  Price talk: 9% area.


    • Lennox is working on a $500m 5y deal via BofA, JPM and WFS.  Baa2/BBB.  Price talk: +135bps area.


    • Nordson is working on a 5y and 10y benchmark via DB, JPM and WFS.  Baa2/BBB.  Price talk: +150bps area, +185bps area.


    • Slovenia is preparing a USD 10y through Barclays, BNPP, Citi, DB, GS and JPM after meeting investors from Sep 7.


    • Gilead plans USD 10y and 30y bonds at around Treasuries +125 and 145bps. Leads are Barclays and Citi.


    • S&P Global is preparing a USD 10y in the region of Treasuries +130bps. Leads are Citi and BofA (B&D). S&P is rated A3 by Moody’s and A- by Fitch.  


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


    • Swedish Export Credit (SEK) launched a $1.25bn 3y Global via GS, JPM, MS and RBC.  Aa1/AA+.  Swaps +41bps.


    • ESMhas launched a $3bn 3y through BofA, CA (B&D) and TD at swaps +28bps.