US SWAPS: 2Y, 5Y Swap Spreads Set For 6-Wk Wide Close On SLR Relief Prospects
Nearer-dated swap spreads are on track to post their widest close in multiple sessions, with the 2Y [-21.2bp, +0.09bp] and 5Y [-35.25bp, +0.41bp] SOFR/Tsy set for the widest closes since early April (in Treasuries' favor vs swaps). This would continue their reversal from the tightest levels seen in mid-April on tariff induced market turmoil apparently forcing unwinds of the popular widening trade.
- The latest catalyst for widening was an FT piece overnight pointing to near-term SLR relief for large banks ("Regulators are in the next few months poised to reduce the supplementary leverage ratio, according to several people familiar with the matter"), which in theory would improve banks' scope to buy Treasuries and richen them vs swaps.
- Deregulation continues to be the dominant theme: Treasury Secretary Scott Bessent has said that SLR reform is a "high priority" for Federal regulators, and incoming Fed Chair for Supervision Bowman has long been an advocate of loosening SLR requirements.
- Swap spread wideners remain in favor, albeit particularly at the long end, especially since April's blowout.
- Deutsche: "We maintain our view of wider swap spreads, supported by the regulatory trajectory, active WAM management, and what we see as stretched valuations. The forthcoming SLR reform (with a proposal outline due possibly as soon as next month) and shifts in Treasury issuance patterns underpin our year-end targets of -35 bps for the 10-year and -70 bps for the 30-year spreads." [Currently the 10Y is at -52bp and the 30Y at -86bp].
- TD: "positioned for 30y swap spread wideners as we look for SLR relief and some moderation in Treasury "risk premium" to help drive a recovery in valuations."- they entered most recently at -87.9bp and target -60bp.
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USDCAD TECHS: Bounces Well
- RES 4: 1.4452/4543 High Mar 13 / 4 and a bull trigger
- RES 3: 1.4415 High Apr 1
- RES 2: 1.4249 50-day EMA
- RES 1: 1.4028/4151 Low Apr 3 / Low Feb 14
- PRICE: 1.3934 @ 16:10 BST Apr 15
- SUP 1: 1.3829/22 Low Apr 14 / Low Nov 6 ‘24
- SUP 2: 1.3744 76.4% retracement of Sep 25 ‘24 - Feb 3 bull run
- SUP 3: 1.3696 Low Oct 10 2024
- SUP 4: 1.3643 Low Oct 9 ‘24
USDCAD has bounced off recent lows but a bearish theme remains intact for now. Last week’s move down marked a resumption of the downtrend and has signalled scope for a continuation near-term. Potential is seen for a move towards 1.3744, a Fibonacci retracement. Moving average studies are in a bear -mode position, highlighting a dominant downtrend. First resistance to watch is 1.4028, the Apr 3 low.
US TSYS: Sentiment Cools Ahead Wednesday Data, Tariff Headline Risk
- Treasuries look to finish modestly higher for the most part Tuesday, curves flatter (2s10s -3.888 at 48.575) with short end rates underperforming. Cautious early optimism over tariff relief (or delay) for autos buoyed rates and stocks in early trade, evaporated in the second half, markets wary of tariff related headline risk.
- Treasuries inch off lows earlier after Empire Mfg comes out less negative than expected, both import & export price index figures lower than expected, prior import prices down revised while prior export prices are up-revised.
- The Empire manufacturing survey improved by more than expected in April to -8.1 (cons -13.5) after a weak -20.0 in March although forward-looking aspects in particular make for sour reading.
- Overall import prices fell -0.1% M/M (cons 0.0%) in March after a downward revised 0.2% (initial 0.4%) in February. For a better idea of underlying price pressures, imports ex petroleum prices saw a larger miss with 0.0% M/M (cons 0.3) after 0.1% (initial 0.4%).
- Jun'25 10Y futures currently +7.5 at 110-31.5, nearing initial technical resistance at 111-00+/111-20 (20-day EMA / High Apr 9). Cross asset: Bbg US$ index mear highs: +3.84 at 1233.90, stocks weaker w/ SPX eminis -8.75 at 5432.00.
- Focus on midweek data: Retail Sales, Industrial Production, Capacity Utilization, NAHB Housing Market Index while Fed Chair Powell will discuss his outlook at the Economic Club of Chicago (text, Q&A) at 1330ET.
AUDUSD TECHS: Maintains A Bullish Tone
- RES 4: 0.6428 50.0% retracement of the Sep 30 ‘24 - Apr 9 bear leg
- RES 3: 0.6409 High Dec 9 and a key resistance
- RES 2: 0.6389 High Apr 3 and a reversal trigger
- RES 1: 0.6383 3.0% 10-dma envelope & Intraday High
- PRICE: 0.6360 @ 16:09 BST Apr 15
- SUP 1: 0.6232 20-day EMA
- SUP 2: 0.6116/0.5915 Low 10 / Low Apr 9 and the bear trigger
- SUP 3: 0.5830 2.000 proj of the Sep 30 - Nov 6 - 7 price swing
- SUP 4: 0.5729 2.236 proj of the Sep 30 - Nov 6 - 7 price swing
AUDUSD maintains a short-term bullish tone following a strong reversal last week. The pair has breached the 50-day EMA, at 0.6267. The break of this average strengthens the reversal and signals scope for a continuation higher, towards 0.6389, the Apr 3 high and the next important resistance. For bears, a resumption of weakness would refocus attention on 0.5915, the Apr 9 low and bear trigger. First support lies at 0.6232, the 20-day EMA.
