Basis: Deals leap out of stable window; AFD on cable, NatGrid on EUR

Euro notes pile
A massive start to the year in the new issuance world has seen global capital markets doing what they do best. Bringing people together.

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  • Record issuance starts to flood basis market

  • AFD: Windows caught early as 2023 eyed warily

  • National Grid: Tapping into demand energy

  • Flows

  • New issues


Record issuance starts to flood basis market

A massive start to the year for new issuance has seen global capital markets doing what they do best. Bringing people together. From Mongolia popping up in USD, to a brace of Canadian borrowers in EUR and an Alabaman borrower in GBP all of life is here, eager to rack up some fresh debt, while they can.


While GBP will almost always play third fiddle to USD and EUR, it has been wildly busy by its standards, while EUR and USD are going blow-to-blow to see which will start this year in poll position.


One trader said this morning that “while the usual favoured curve points are still in play (USD historically works best in 3-5y, EUR 5 to 10y and GBP has a bit of an ultralong niche) the funding opportunities aren’t as clearcut as they were a year ago (when EUR worked better at most points than USD) so you’re seeing supply everywhere and good two-way flow.”


Message delivered, the busy swapper disappeared in a puff of smoke, his good work to continue. The balance of supply was best left to be illustrated by the moves in basis where EUR/USD was lower from 3m out to 15y led by the front end, suggesting basis swapped EUR-denominated issuance holding a slight edge over USD. Currently the 3y is -0.5bps at -23.25bps, 5y is -0.625bps at -23bps, 10y is -0.5bps at -22.875bps and the 30y is doing its own thing, +0.375bps at -10.875bps as the USD rates curve bear-steepens.


In cable, despite a big week for basis-swappable GBP issuance, much of that occurred yesterday (see AFD below). So, there was a modest push higher today, with 5y, having peaked on Monday -18.75bps and then dipped to -20.625bps yesterday, has pushed back up to -19.875bps at the time of writing, up 0.25bps.


In flow… there’s been a lot. Cable was busy in 3y at -17.875bps, 8y EUR/USD was kept busy at .22.75bps, 9y cable and EUR/USD were both busy, as was 15y EUR/USD at -23bps. But in truth these two curves were active all over the place up to 15-years. Beyond that though, ultralongs were relatively quiet, a stark contrast from the dark days of Autumn when supply was borderline extinct, and all the action was in ultralong volatility hedging by panicky XVA desks.    


AFD: Windows caught early as 2023 eyed warily

Among the veritable slew of new GBP issues to arrive already this year was one from a regular, but fairly infrequent, visitor, Agence Francaise de Developpement. The publicly-owned institution sold a hearty £500m of 3y bonds at gilts +105bps via Deutsche, HSBC and MS (books) amid orders of around £600m. Central banks and other official institutions took down 63.6% or around £318m of the issue.


A senior official at the organisation told Total Derivatives today that he was happy to get the (usually) annual GBP offering out of the way, and said another was still a possibility.


Looking generally at the currently manic issuance market, he said that “January is usually a busy, crowded month and we are clearly considering issues in a number of currencies, with a €10bn funding target again this year we are not going to stick to just one.”


As for GBP he said “it is a market with just a few windows, and when we noticed other deals doing well there we took the opportunity to issue in sterling. We have a target to issue one GBP per year and as soon as the window opened we did! The rest of the year we intend to be as flexible as possible so if opportunities do present themselves in GBP then we might return before year-end.


From a basis swap perspective he said that “it tends only to work in short bursts and the basis is not always helpful for swapping back to EUR. But this was good enough (in terms of all-in costs) versus EUR or USD issuance. Arbitrage matters but you can’t always tick all the boxes but if you can tick most of them then sometimes that is good enough.”


And looking at this exceptionally busy start to the issuance year, the senior AFD official said that “there was so much volatility last year that people worry where the market will be in weeks and months to come, so when there’s a stable window people are keen to come to market.”


“Last year,” he concluded, “clearly has made an impact and there are also issues around calendars and forecasts for 2023 regarding central banks, supply and events, that people are taking into account at the moment.”  


National Grid: Tapping into demand energy

Among the literally dozens of cross-market issues to emerge so far this week was yesterday’s €1.75bn (€750m 6y Green bond at swaps +100bps and €1bn 12y at swaps +140bps) offering from National Grid. The deal was clearly at the higher end of the range of the 2023 issues to date, and constitutes a big chunk of the UK energy infrastructure company’s annual fundraising plans.


A senior Treasury official at National Grid told Total Derivatives today that the company started the new year with a EUR-denominated deal because “of pricing and depth. Given the amount of funding we require for growth and refinancing we focus on GBP, USD and EUR and which currency and maturity we go for is very much decided by where the demand, pricing and depth is.”   


Yesterday, he said, demand in EUR and for the two-tranche National Grid deal itself was “very strong, and we are very pleased with the response we received. There is clearly a lot of money being put to work out there after a quieter final quarter of 2022.”


In an investor update last year National Grid noted that: “External debt is raised by our operating companies, intermediate holding companies and by the Group parent company, National Grid plc. In FY23, National Grid expects to issue c. £5bn of long-term debt to fund capital expenditure and to refinance maturing debt.”


“The vast majority of our debt is raised in the capital markets… Debt is issued in multiple currencies with derivatives used to manage the ultimate liability into sterling or US dollars.” The above senior National Grid official said today that their annual funding requirement is around £5-6bn.


Subsequently another big UK utility, Thames Water, announced plans for EUR 4.25y and 8y secured Green bonds after meeting investors on Jan 10. Leads are Barclays, HSBC and SMBC Nikko 



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


New issues


USD new issues:

  • KfW has priced a $4bn Global via BofA, Citi and RBC. Swaps +40bps.


  • BPCE is preparing USD 5y and 4y NC3 (SNP) bonds at around Treasuries +165 and 230bps. Leads are Barclays, Citi, JPM (B&D), MS, Natixis, RBC and TorDom.


  • OKB plans a $1bn 3y Global at around swaps +39bps. Leads are Barclays, Citi, GS and HSBC.  Expected to price Wednesday.


  • Macquarie is preparing a USD Tier 2 sub in the region of Treasuries +350bps. Leads are BofA, Citi, GS, JPM, Macquarie and WFS.  


  • Kommunalbanken is preparing a USD 5y in the region of swaps +58bps. Leads are Citi, HSBC, JPM and RBC.  Expected to price Wednesday.


  • CDC is preparing a $1bn 3y at around swaps +46bps. Leads are Barclays, BNPP, JPM, MS and Nomura. Expected to price Wednesday.


  • CaixaBank plans a USD  6y NC5 SNP after meeting investors Jan 9.  Barclays, BofA, BNPP, Caixa, JPM and MS are leads.



  • RBC yesterday priced a four-tranche USD issue including a $1bn 3y fixed at +95, a $300m 3y FRN at SOFR + 108bps, a $750m 5y at +125bps and a $1.7bn 10y at +150bps. Leads are Citi, JPM, KEY, RBC, Santander and SocGen.


  • National Bank of Canada yesterday priced a $750m 2y via Citi, NBC, GS, JPM and RBC.  A3/BBB+/A+. +110bps.


  • BNP Paribas yesterday priced a self-led $1.75bn 6y NC5.  Aa3/A+/AA-. +145bps.


EUR new issues:

  • World Bank plans EUR 10y SDG through BNPP, DB, Natixis and Nomura. 

  • Motability Operations, a UK company, is pricing €500m 8.5y around swaps +85bps. It is also pricing £300m 20y around gilts +115bps. Leads are Barclays (B&D), HSBC, Lloyds and NatWest.

  • Thames Water plans to sell EUR Green 4.25y and 8y bonds in the near future through Barclays, HSBC and SMBC Nikko.

  • Westpac has priced €1bn of 3y bonds at swaps +50bps and €500m of 7y at swaps +90bps through Barclays, BNPP, JPM and Westpac.


  • NatWest Markets has priced a €1.5bn two-tranche bond consisting of €750m 3y FRN at EURIBOR +98bps and €750m of 5y at swaps +130bps via itself.


  • Export Development Canada plans EUR 5y through BNPP, DB, NatWest and TD. 

  • Hyundai Capital Services plans 5y Green through CS (B&D).


  • RBC has priced a €1.75bn 2y FRN at 3mE +43bps through RBC (B&D) and SocGen.


  • National Grid yesterday priced €750m 6y Green at swaps +100bps and €1bn 12y at swaps +140bps. Leads are BOC, BNPP, BofA (B&D), ICBC, ING and SMBC Nikko.


GBP new issues:

  • BFCM has priced a £500m, 3y at gilts +170bps via BNPP and Goldman Sachs (B&D).


  • BNPP yesterday priced an £850m, long 9y SNP at gilts +215bps. Self-led.


  • Alabama-based insurer Protective Life yesterday priced a £350m, 5y secured bond at gilts +180bps via Barclays, BNPP (B&D), Deutsche and TorDom.  


  • Agence Francaise Developpment yesterday priced a £500m, Mar 2026 bond at gilts +105bps via Deutsche, HSBC and MS.


  • OKB yesterday priced a £450m, 3-year bond at gilts +86bps via HSBC, RBC (B&D) and JPM.


  • Royal Bank of Canada yesterday priced a £750m, SONIA +75bps Canadian Covered FRN at par via Barclays, HSBC, Lloyds, RBC, Santander and Standard Chartered.