Basis: Deals grease wheels; JPY curve talk

River Flow
Quiet in the World Cup, busy in basis? That was certainly true of non-Danish Scandinavian issuers during a busyish day. Citi sees JPY XCCY flattening.

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  • Deals grease wheels as France eyed

  • Citi: JPY-USD flattening eyed, led by the front-end

  • Flow

  • New issues


    Deals grease wheels as France eyed

    With Denmark the only Scandinavian representatives at the 2022 football World Cup, is it coincidence that borrowers from Sweden and Norway (SEK and NIB in USD, and Kommunalbanken in EUR) form the bulk of issuers selling bonds likely to be basis swapped so far today?


    Perhaps. And with possible World Cup absences in mind it was briefly interesting to see Argenta Spaarland pop up with an issue in euros, before memory recalled that despite its name, the bank is actually from the Netherlands, not Argentina.    


    In the basis market itself activity was surprisingly brisk. One seasoned swapper said this afternoon that “today and tomorrow are where the issuance windows will open up this week and we’ve seen Calyon (Credit Agricole £750m) and Barclays (€1.25bn) in amongst the mix, and more interbank turnover than we’ve seen recently.”


    In terms of flow today, the standout curve points included 3y EUR/USD, which traded numerous times between -30 and -30.25bps ahead of the pricing of that Swedish Export Credit $1.75bn 3y. 10y EUR/USD was busy around -26.5bps while in cable 5y saw a lot of flow from -22.185bps to -22.5bps and 10y was active between -17 to -17.25bps.  


    On the core basis curves, flattening was in order with (relatively) stable underlying markets prompting little interest in the long end of basis while front ends were better bid as they continue the re-tightening pathways embarked upon after the traditional Sep 30th, quarter-end collapse.


    Today 3m cable was +1.875bps, 10y was unchanged and 30y was -0.25bps late in the day, while in EUR/USD, the 3m was +4.25bps after a spike higher at the opening, while 10y and 30y were both +0.25bps. In FX the USD saw renewed weakness amid speculation about 'peak dollar' with the index down 0.4%.


    Elsewhere, a fairly modest CHF115m 5y deal from Credit Agricole preparing for pricing which has corresponded with 5y CHF/USD trading a few times between -56 and -56.5bps.  


    While interbank flows genuinely do seem to be keeping basis swappers busy today, one had time to pass on a World Cup tip, saying that perhaps Saudi versus Argentina might not prove be the biggest shock of the day. France versus Australia is still to come…


    Citi: JPY-USD flattening eyed, led by the front-end

    Strategists at Citi this week cast an eye over the recent surprise tightening in JPY-USD basis swaps which followed a rally by JPY in the FX market from USD/JPY 150 in mid-Oct to around 141 today. In that time, JPY-USD basis has tightened sharply, with, for example, 3y moving from -83bps to -67bps.


    Citi notes that “the basis has tightened significantly as the yen has turned upward. We had expected tightening towards year-end, but the extent of movement has surprised us. We think there has been paying of the cross gamma in the medium- to long-term sectors, and the tightening of IG spreads is also supportive.”


    Still, it contends that recent evidence suggested “it is ultimately still too early to price in a Fed pivot. Given the extent of increase in interest rates this year and the consensus that there will be recession from next year onward, credit spreads remained tight so far this year. If this valuation is maintained, the XCCY basis is roughly around fair value. Assuming the risk that this is not the case, then it is currently too tight.”


    It says current levels are around the same as before the rapid widening in June, so Citi says it is not surprising there is profit-taking ahead of year-end.


    However, “we think it more likely that there will be further tightening in the short-term sector at the turn-of-the-year. As we have pointed out previously, we think that many Japanese investors have already secured turn-of-the-year funding, and we expect year-end forex hedging demand to be weaker than usual. The results reports of some life insurers indicate that they have greatly reduced holdings of hedged foreign bonds, and that they will continue to do so.”


    “If turn-of-the-year hedging now tapers off,” concludes Citi, “there could be further tightening. We expect flattening in 1y/5y, etc.”



    Basis trades on the SDR can be seen here: Total Derivatives SDR.


    New issues

    USD new issues:

    • Swedish Export Credit is close to pricing a $1.75bn 3y Global at swaps +51bps. Leads are BofA, BMO, Scotia and MS. 


    • NIB is preparing a $150m (min) tap of its May 2026 FRN at SOFR +41bps. Leads are HSBC and JPM.


    EUR new issues:

    • Kommunalbanken is close to pricing a €1bn, 5y bond at swaps +10bps via Barclays and Citi.


    • Barclays is pricing a €1.25bn 11y NC10 at swaps +255bps through itself. Order book size above €1bn.


    GBP new issues:<

    • Commerzbank is close to pricing a £350m, 10.25y NC5.25 Tier 2 sub at 8.625%. Books are above £1.5bn and Barclays, Commerz (B&D), GS and HSBC are the leads.  


    • Credit Agricole is close to pricing a £750m 5y NC4 at gilts +260bps via Credit Agricole, HSBC, NatWest, Nomura and RBC (B&D).


    CHF new issues:

    • Credit Agricole plans a CHF 115m, 5y bond at SARON +80bps via UBS.