Basis: USD supply takes reins from EUR; Yankee headwind?

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USD supply took the reins after strong EUR issuance yesterday while GBP, CHF and NOK also shone. Barclays looks at the outlook for Yankees.

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  • USD supply takes reins from EUR

  • Barclays: Yankee issuance headwind? Derivatives add to supply

  • Flow

  • New issues:


USD supply takes reins from EUR

Thursday is often the peak day of the week for the cross-currency basis swaps market, and that is likely to be true of this first, busy week of 2023, particularly thanks to a big day for USD supply by non-US names.


This week has seen the big lumps of cross-border supply oscillate between EUR (which was very lively yesterday) and USD (today). The various basis swap curves told the story of the day as deals were rattled out in multiple doses in numerous currencies including GBP, CHF and (of course) USD, as well as a welcome addition from the NOK market.


The impact on the cable and CHF curves were pretty clear as the front end-loaded GBP supply saw the cable curve bear-steepen with 3y and 5y dropping 1bp each while 30y ended the day unchanged after volleys of 3y and 5y GBP offerings over the last two sessions.


The surge in GBP supply is heartening for the London basis trading community, and would have been unthinkable just three months ago after the Truss event.


In CHF/USD the curve also sagged, with the biggest move being in the 5y sector (-2.5bps to -47bps) after CHF issues from RBC in that 5y sector, among other issues in 3y and 7y.


Finally, KfW today popped up with one of its regular but infrequent NOK offerings with a NOK 6bn, 5-year deal which coincided with decent 5y NOK/USD flow at -19bps. All-in-all it’s been a lively start to the year for cross-border supply after a fairly long wind-down by the market last year and reflecting the keenness of borrowers to lock in funding at a time of relative stability ahead of whatever 2023 has to offer.



Barclays: Yankee issuance headwind? Derivatives add to supply

Looking to the rest of this new year of 2023, strategists at Barclays said today that they see the EUR/USD FX rate to play a larger role than usual in forming issuance decisions by bank borrowers in the EUR bond market.


“A higher €/$ rate 2022 issuance (in EUR equivalent) was higher than previous years, partly helped by a lower FX rate for €/$ which meant USD issuance appeared relatively high in EUR amounts. Barclays FX analysts are calling for a higher FX rate for €/$ of 1.12 by end-2023, which we think could provide a headwind for Yankee bank issuance appearing not as high as 2022 levels, in EUR equivalent amounts.”


Interestingly it also noted that in 2022, the rising cost of derivatives added to overall issuance by European (not just EU) banks in the EUR bond market, which would of course often drive more derivatives business.


It said that “we think that the very high growth of derivatives in 2022 will likely moderate in 2023. The increase in the fair value of derivatives on banks’ balance sheets would have likely driven higher cash/collateral margin requirements, which in turn likely drove higher funding requirements for banks in 2022. Interest rate swaps/derivatives are used extensively by European banks to manage rate risks and this is the key driver of the increase.”


On balance, Barclays says that it expects European bank issuance activity in the EUR market to be similar this year to last year, at around €300bn.




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




New issues


USD new issues:

  • Romania (Baa3/BBB-) is preparing USD 5y, 10y and 30y bonds at around Treasuries +300, 370 and 410bps. Leads are BNPP, HSBC (B&D), ING, RBI and UniCredit.


  • Credit Agricole is working on a USD 5.5y at around Treasuries +165bps. Leads are CA, GS, JPM, TorDom and WFS.


  • HK Airport Authority (AA+) plans USD 3y, 5y Green, 7y and 10y bonds. Seen at around Treasuries +105, 135, 160 and 185bps. Leads and GCs are BofA, HSBC (B&D), JPM, StanChart and UBS.


  • Hungary (Baa2/BBB) yesterday priced a $4.25bn 3-part ($1.5bn 5y, $1.5bn 10y and $1.25bn 30y). Leads BNPP, Citi, DB, GS and JPM (B&D). +240bps, +280bps and +325bps, respectively.


  • EIB yesterday priced a $5bn Global via Barclays, Citi and TD at swaps +39bps.


  • Standard Chartered yesterday priced a $2.5bn 2-part ($1bn 4y NC3 and $1.5bn 6y NC5). Leads are Barclays, DB, JPM (B&D), MS and StanChart. A3/BBB+/A. +205bps and +245bps.


  • National Australia Bank yesterday priced a $3.5bn 3-part ($1.15bn 3y, $1.1bn 5y and $1.25bn 10y sub). Leads are BofA, Citi, GS, MS and NAB. Aa3/AA-/A+. +85bps, +110bps and +275bps, respectively.


  • Nomura Holdings yesterday priced a $1.9bn 3-part ($600m 3y, $550m 5y and $750m 10y). Leads are BofA and Nomura (B&D). Baa1/BBB+. +160bps, +200bps and +250bps respectively.


  • Rabobank yesterday priced a $1bn 2y senior preferred fixed. Leads Barclays, JPM, MS, Rabo and RBC. Aa2/A+/AA-. +65bps. It dropped plans for a 2y FRN.


  • Credit Suisse yesterday priced a $3.75bn 2-part ($1.25bn 2y fixed and $2.5bn 5y). Self-led. A3/A-/BBB+. +370bps and +370bps. It dropped plans for a 2y FRN.


  • Danske Bank yesterday priced a $1.25bn 3y NC2 SNP. Leads BofA, Citi, Danske, JPM, RBC and UBS. Baa2/BBB+/A. +210bps.


  • Hong Kong yesterday priced a $3bn 4-part green bond ($500m 3y, $1bn 5y, $1bn 10y and $500m 30y). Leads Credit Agricole, HSBC, Citi, JPM, BNPP, BofA, MS and UBS. AA+/AA-. +35bps, +70bps, +9bps.


EUR new issues:

  • UBS Group yesterday priced a €1bn 8yNC7 at swaps +155bps through UBS, Commerzbank, Nordea, Rabobank and Swedbank.

  • New York Life yesterday priced a €1bn 7y Fixed Assed Backed at swaps +100bps through Barclays (B&D), BNPP, CS and DB.

  • Hong Kong yesterday priced a €750m Green 2y bond at swaps +70bps and a €500m, 7y at swaps +110bps. Leads were CA, HSBC (B&D), Citi, JPM BNPP, BofA, MS and UBS.


  • Lloyds Banking Group yesterday priced a €750m 6yNC5 at swaps +160bps through Lloyds (B&D), BBVA, GS, ING and Nomura.

  • Swedbank yesterday priced a €750m Green SNP at swaps +135bps through ABN Amro, Barclays, Natixis, NatWest and Swedbank.


GBP new issues:

  • Credit Suisse is on the brink of pricing a £500m, 3y self-led bond at gilts +425bps.


  • Pacific Life today priced a £350m, 5y, FA-backed bond via Barclays, DB and JPM. It came at gilts +155bps.


  • Asian Infrastructure Investment Bank (AIIB) yesterday priced a £350m long 3y Sustainability bond at gilts +100bps. Leads are HSBC, Nomura and TorDom (B&D). Books above £740m.


  • TD Bank yesterday priced a £350m 5y note at gilts +175bps via Lloyds, NatWest, Nomura (B&D), TorDom and UBS. Books above £450m.


  • Westpac yesterday priced a £750m 5y Australian Covered FRN at SONIA plus 75bps through Barclays, HSBC, Lloyds, NatWest, RBC (B&D) and itself. Books above £860m.


SEK/NOK/DKK new issues:

  • KfW today priced a NOK 6bn 5y bond at swaps -11bps via BNPP, Deutsche, JPM and MS.


CHF new issues:

  • RBC today priced a CHF 200m, 5y bond at SARON +82bps via RBC.


  • Nationwide today priced a total of CHF 485m of bonds split between a CHF 315m, 3y bond at SARON +22bps and a CHF 170m 7y at +29bps via UBS.


  • SEK today priced a CHF 125m, 7y bond at SARON flat via CS.