Halister News

(Bloomberg) -- Impact of corporate issuance on rates markets has increased further in past year, and “rates tend to continue selling off in the week after a supply shock,” BofAML strategists Ralph Axel and Shyam Rajan say in note.

• Analysis incorporating Tuesday’s $22b non-floating rate supply “and the rise in rates and tightening of spreads that accompanied it” found that shows that since start of 2015, increase in UST rates in response to supply shock of certain magnitude is 10x greater for 5y, 7x greater for 10y, than in 2010-2014
  • Daily supply at least 1 standard deviation above 3-month avg spurred 2.4bp increase in 10y rates on avg vs 0.4bp in 2010-2014
• In 5 trading days after a shock of that size since start of 2015, 10y rates have risen another 2bp on avg, “in stark contrast to the 2010-2014 period when rates showed no evidence of continued selloff in the week after a big supply day,” and “no bias one way or another after supply shocks”
• “Trading with the momentum of a selloff after heavy corporate supply could be a compelling strategy,” as gross supply is likely to be near same amount as last year, and on a “more clumpy or irregularly paced” schedule, which “may result in larger market moves to trade”