HYBRIDS: OMV (OMVAV Sub: Baa2/ /BBB) Perp Refinancing

Futures trade as low as 91.20 at the open, comfortably through Friday’s late lows, extending on the downtick that was seen ahead of the weekend (the contract closed Friday’s opening gap higher late in the same session).

• Spillover from weakness in Tsys is the primary driver here, after Moody’s downgraded their U.S. sovereign credit rating by one notch late on Friday.
• Initial support of note located at the May 14 low/bear trigger (90.96), with bears remaining in technical control.
• Initial resistance located at Friday’s high (92.03).
• Yields 1-5bp higher, curve steeper.
• 2s10s still ~12bp shy of cycle closing highs, last ~67bp.
• 5s30s ~11bp below closing cycle highs, last ~127.7bp.
• GBP STIRs hovering around pre-gilt open levels.
• SONIA futures flat to -4.0, BoE-dated OIS showing 42.5bp of cuts through year-end.
• Late Friday saw BoE Deputy Governor Deputy Governor Lombardelli note that the Bank is overhauling its communication methods via a shift away from its main inflation forecast toward multiple scenarios. Not market moving.
• Wednesday’s CPI data headlines the UK calendar this week. We have written a little on that in our global week ahead/late Friday bullets, expect more in our full preview.

UST bear steepening has extended this morning, as markets digest Moody’s US ratings downgrade late Friday. While the move may not have been expected, Moody’s were previously the last of the three major agencies to still assign the top rating (Aaa) to US debt.

• US 5s30s is 5bps higher at 90bps, still shy of the multi-year high of 100bps on May 1.
• 30-year yields are up 5bps, hovering around the 5% handle once again. This level has provided solid resistance since Q4 2023, and was most recently respected last Thursday.
• As noted above, early moves in USD FX suggest the deterioration in US credit worthiness was partially priced in through the recent tax bill headlines and tariff volatility. Meanwhile, Tsy Secretary Bessent played down the ratings action over the weekend, noting Moody’s – and ratings agencies more generally – were a “lagging indicator” of US fiscal health.
• Over the weekend, FT Alphaville weighed in on whether the downgrade matters from a technical perspective. They wrote that “banks’ risk-weighted capital asset calculations look unlikely to be impacted by the rating change. This is because regulators don’t tend to differentiate between Aaa and Aa1 when setting capital risk-weights”.
• Additionally, they cited Barclays research that noted: “For collateral purposes, a downgrade to Aa1 is also unlikely to have an effect. For instance, DTCC and CME refer to the asset class as US Treasuries and the haircut is a function of the maturity and security type (TIPS/FRNs) but not the ratings. At LCH, a downgrade to Aa1 is unlikely to lead to a change. For instance, USTs and Gilts have similar haircuts, even as the latter are rated lower”….”Legislation since the financial crisis has reduced the use of explicit ratings guidelines in investment mandates”.

TYM5 112.50 calls paper paid 0-01 on 5.2K.