Basis: Cable bid; HF flows in SONIA-SOFR not enough

Cables many


  • Cable and other bases bid amid ongoing USD glut

  • HF flows in SONIA-SOFR ‘not enough’

  • Flow

  • New issues



    Cable and other bases bid amid ongoing USD glut

    Potential cross-currency-swapped issues are at a premium during this Easter period, and those which are popping up in currencies such as GBP, EUR and JPY are getting easily gobbled up, said dealers today. Which bodes well for issuance in some currencies once holiday trading gives way to the real thing.


    Using cable as an example of current market dynamics, one seasoned basis swapper said this lunchtime in London that “there have been a couple of deals, a £100m tap from NIB and a £400m short 5-year from Macquarie that are strong swap candidates but which haven’t really touched the sides on the way down.”


    “There are generally better ASW payers of cable out there so the (cable basis swap flow arising from the) Macquarie deal will have been swallowed up easily,” he said.


    The basis swapper explained that the ongoing glut of USD sloshing around as a result of Fed and US government Corona stimulus packages means that “paying is dominant (in cable, EUR/USD and in long JPY/USD) as onshore USD are put to work in offshore issuance markets, buying foreign currency assets with excess USD and then swapping back. We will see another surge of paying when North America opens up this afternoon.”


    The impact of this skewed market direction should be positive for those looking to issue in, or arrange issuance of, bonds in GBP, EUR and JPY once market activity accelerates next week. The basis swapper noted that at -8bps, 3m JPY/USD is approaching zero for the first time since the panic trading of 13 months ago.


    And the ASW paying is of course occasionally being enhanced by issuance, with traders citing Heathrow Funding’s CAD 950m, 6.5y and 12y Maple Bond on Tuesday as adding to upwards pressure on cable.


    Thus, “the paying is shifting cable to high levels which should encourage borrowers to come to sterling but of course activity is still on the thin side because of Easter.” The 10y cable basis swap is now at a five month high of +3.25bps and is about a basis point from post Corona high levels.


    So far today, basis swap moves have been slight, with cable unchanged at the front end and +0.375bps from about 5y onwards, while EUR/USD was mostly unchanged with some moves of 0.125bps in both directions.


    HF flows in SONIA-SOFR ‘not enough’

    The long, long-awaited transition by the cross-currency basis swap market away from BORs and towards new RFRs is proceeding unevenly. The leader of the RFR pack is widely thought to be SONIA but even there, said one basis swapper today, progress is patchy.


    “The FCA is pushing to move onto a SONIA-based basis swap by Q3,” he noted. He said that “we are just trading LIBOR with a fallback spread, and trading RFR when looking at RV trades etcetera.”


    “There is still a general pick-up in SONIA-SOFR flow, it’s not catching up with LIBOR yet, but it will.” The trader contended that this has created opportunities for those agile enough to embrace the future before others.


    Specifically, he said that “we’ve seen 1y1y LIBOR-based cable trading heavily in the last few months at around -2bps. But you’ve got 1y1y SONIA-SOFR trading at around -5.5bps at the moment, so you are seeing hedge funds trading SONIA-SOFR for that extra 3.5bps of carry but its hard to see why others are still trading the 1y1y LIBOR.”


    He added that “overall we are seeing a small uptick of SONIA-SOFR trading but we need it to become a much bigger take-up over the next six months.”


    If that starts happening, he said that the big fallback moves in the front end of cable (as well as EUR/USD and JPY/USD basis curves) at the end of Q1 2021 (see Total Derivatives) in reaction to the move into the ‘New Year transition turn’ and the subsequent FRA-OIS widening move, may not repeat at the end of June.


    “If there is an acceleration of SONIA-SOFR take-up between now and then, then there will not be a big impact on 9m cable at the quarter-end in June, but if most people are still on LIBOR, then it will.”       




    On the SDR today, EUR/USD flows were reported in:

      2y at -9.25bps twice

    • 3y at -9.25 twice and -9.5bps

    • 5y at -9.625bps


    Also on the SDR today, flows were reported in:

    • 1y cable at -3bps

    • 2y CHF/USD at -11.75bps twice

    • 3y CHF/USD at -11.75bps

    • 5y CHF/USD at -12.5bps twice

    • 8y CHF/USD at -15.75bps


    New issues


    USD new issues:

    • The EBRD is close to pricing a $500m, 5y SOFR +19bps FRN via BofA, Daiwa, JPM and Nomura.


    • KfW is close to pricing a 2y benchmark at swaps -2bps. Leads Barc, Citi and TD. 


    • AAIB is working on a 5y FRN. Leads BMO, BNPP and Citi.  Aaa/AAA.  Price talk: SOFR + 22bps. Expected to price today.


    • JBIC is close to pricing a $1bn 3y and benchmark 10y note. Leads are Citi (B&D 10y), Daiwa (B&D 3y), GS and Nomura. A1/A+. Mid swaps +4 and +24bps, respectively.


    • CPPIB is on the brink of pricing a $1bn 3.5y. Leads are Barclays, BofA, GS and TorDom. Aaa/AAA/AAA. To price at mid swaps +1bp.


    • Kia Corp. plans a USD 3y and 5.5y Green bond after meeting investors today. Leads are BofA, Citi, HSBC and StanChart.


    • UOB yesterday priced a $1.5bn 2-part ($750m 5y Sustainability bond and a $750m 10.5y NC5.5y sub). Leads are BNPP, HSBC (B&D), SocGen and UOB. Aa1/AA-/AA- for 5y. A2/BBB+/A for 10.5y. +48bps and +123bps, respectively. 


    • Ontario yesterday priced a $3bn 5y Global. Leads Citi, HSBC, JPM and Scotia (B&D).  Aa3/A+.  Swaps +11bps.


    • EBRD yesterday priced a $850m 5y FRN Global. Leads BofA, Daiwa, JPM and Nomura. Aaa/AAA. SOFR + 19bps.


    • Asian Development Bank (ADB) yesterday priced a $5bn 5y Global. BMO, CA, DB and GS. Aaa/AAA/AAA. Mid swaps +2bps.


    EUR new issues:

    • Merck pharma spin-out Organon & Co. plans EUR ($1bn equivalent) 7y NC3 3% secured high yield bonds (plus USD tranches).  Leads are BofA, BNPP, Citi, CS, DB, GS, HSBC, JPM and MS.  


    • Mizuho on Tuesday priced a €750m 5y ad €500m 12y bond at swaps +52bps and +68bps. Via Barclays, BPP, HSBC, Mizuho ad SocGen.


    • Santander Nordics on Tuesday priced a €500m, 5y at swaps +75bps via Citi, MUFG, Santander and UniCredit.


    GBP new issues:

    • NIB is close to pricing a £100m, 0.125%, Dec 2026 tap at gilts +24bps. Via Barclays and RBC.


    • Macquarie Bank today priced a £400m 5y bond at gilts +90bps via BNPP, HSBC, MQB and NatWest.


    • Banco Santander SA yesterday priced a £600m, 5y senior non-preferred bond at gilts +122bps via Lloyds, NatWest, Nomura, RBC and Santander (B&D).


    CAD new issues:

    • Heathrow Funding on Tuesday priced a CAD 950m bond consisting of a CAD 650m 6.5y at +155bps and a CAD 300m, 12y at +210bps via BMO, RBC and TorDom.


    CHF new issues:

    • New York Life Global Funding is close to pricing a CHF 450m, 9.25y at around swaps +18bps.


    AUD new issues:

    • Deutsche Telekom AG issued a AUD90m 20-year EMTN through Morgan Stanley. It pays an annual 3.50% coupon and matures Apr 15, 2041.


    • Asian Development Bank on Monday increased the size of its existing 3.3% August 8, 2028 Kangaroo bonds by AUD100m to bring the new size to AUD1.1bn. Lead is Citigroup and priced at 49.5bps over ACGBs.


    • Societe Generale issued AUD300m in 4.5% April 18, 2038 callables with single call at par in April, 2029. Priced at 245.4bps over mid-swaps.