Basis: Thames Water creates waves; Swiss issues on a roll

Swiss Roll 12 Jan 2022


  • Thames Water creates waves; Swiss issues on a roll

  • SocGen on 2023 tightening

  • Flow

  • New issues:


Thames Water creates waves; Swiss issues on a roll

The keenly-awaited US CPI data today (a boring 6.5% yoy in Dec as forecast, versus previous 7.1%) promised enough risk potential to allow the red hot new issuance market to cool down for a bit, with new deals being done but at a much slower pace than had been seen in the previous three days of this very busy week so far.


Basis swappers said that in terms of outstanding basis-swappable new issues, things were so slow today that the CHF market actually stood out. And to be fair, if GBP supply managed to catch the eye last week, then why not CHF?


And CHF issuance has definitely been on a roll, with four deals in 24 hours from Lloyds, BAWAG, CA, BMO and Desjardins du Quebec. As one impressed basis swapper said “its actually been quite busy in Swissie and to be fair to it, it seems to have absorbed the flow well.”   


This burst of Swissiness saw 3y, 4y, 5y and 7y deals and the above basis swapper said that “there’s been some fairly notable (CHF/USD) flows, in 5y at 15.75bps and 3y at 42bps.” The curve had generally bween at 6-7 month highs when 2023 kicked off last week, but the belly has dropped 5-6bps since then, possibly on pre-hedging of these and other CHF-denominated deals (such as RBC, SEK and Nationwide last week).”


In other, less influential markets such as EUR/USD traders noted TorDom today following in the recent footsteps of RBC (the herd mentality remains strong in Canada) with a 2y EUR offering, though as yet no subsequent 2y EUR/USD or indeed CAD/USD flows had been detected. 


Describing today as “distinctly quieter ahead of CPI (which we now know wasn’t worth waiting for),” the above trader said that the standout deal of the last couple of days was yesterday’s Thames Water €650m, 4.25y and €1bn 8y deal.


The swapper said that “Thames Water stirred up a lot of flow activity… it pushed GBP/EUR basis higher with a lot of the 8y flow going through at +5.75bps equivalent, when it was +3bps on Tuesday morning.”


He said that after flow gushed through most heavily at the recent peak of 5.75bps yester, it soon subsided to 4.75bps, adding that the execution “seemed quite lively.”


As for the basis-swappable new issuance market so far this year, the trader said he had been too busy to see if early-year activity could be called record-breaking, but said that it too could certainly be described as “lively” too. So far, so good.   



SocGen: Tighter bases as central banks converge

Looking to the rest of this still-new year, strategists at SocGen said in their latest look at this market, published late last week, that the main big picture trend of 2023 will be a tightening of cross-currency bases driven in large part by central banks.


SocGen advised to “expect tighter bases as central banks’ policy gaps converge,” noting also that “FX risk, liquidity funding risk, credit risk, and supply/demand are all drivers of the EURUSD cross-currency basis (meaning that the) short end tends to be more volatile than the long end. A rise in the EURUSD spot rate could flatten the basis swap curve.


Looking at central banks, and the BOJ, it said that “further loosening of yield curve control by the Bank of Japan could narrow the JPYUSD cross-currency basis as Japan’s monetary policy converges with the US.”


A risk to that view, in JPY/USD and other bases, says SocGen, is the possibility that “the continuation of QT in 2023 will reduce USD liquidity and may widen cross-currency bases. (However) expected announcements of looser bank capital regulation in the US could counteract reduced USD liquidity conditions.”


And looking specifically at the front-ends of cross-currency basis curves, SocGen says that they tend to be more volatile than long end, noting that “the short end of the curve tends to react more to FX risks, meaning curves would generally steepen when the EUR is weak and vice versa.”


In other words curves set to flatten as the Fed/ECB policy gap narrows. SocGen said that “the policy gap between the Fed and ECB is narrowing and we believe will likely continue to do so in 2023 due to the different inflation dynamics between the US and Europe. This gap is reflected in the swap market, which is now pricing a significant narrowing of the SOFR-ESTR spread until 2027… We think this should put upward pressure on the short-end basis swap spread in 1H23 because it is more sensitive to FX risk. Paying short-end basis forward vs long-end therefore makes sense, especially with rolls relatively high at around 15-20y.”



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


New issues


USD new issues:

  • ICBC yesterday priced $900m 3y fixed and a $600m 3y floating rate Green bonds at Treasuries +61bps and SOFR +93bps. Leads on the fixed rate tranche are ABC, BoC, Cank of Comms, CCB, CA, HSBC (B&D) and StanChart.


  • Turkey (B3/B) yesterday priced a $2.75bn 10y Global. Leads are Citi, GS (B&D) and StanChart. 9.75%.  


  • Daimler Trucks priced a $1.8bn 3-part ($650m 2y fixed, $650m 3y and $500m 5y). Leads BBVA, DB, JPM and Mizuho. A3/BBB+. +103bps, +123bps and +148bps. 


  • KBC priced a $1bn 6y NC3. Leads BofA (B&D), GS, JPM and MS. Baa1/A-/A. +210bps.


  • Kommunalbanken priced a $1bn 5y at swaps +57bps. Leads are Citi, HSBC, JPM and RBC.


  • OKB priced a $1bn 3y Global at swaps +35bps. Leads are Barclays, Citi, GS and HSBC.


EUR new issues:

  • KommuneKredit is pricing €500m (max) 12y around swaps +21bps through BNPP, Citi, Danske and JPM.


  • TorDom Bank is pricing EUR 2y FRN around 3mE +60bps through Barclays, Commerzbank, Natixis, SocGen and TD (B&D).


  • Thames Water priced a €650m Green 4.25y at swaps +120bps and a €1bn 8y at swaps +160bps. Leads are Barclays, HSBC (B&D) and SMBC Nikko.


GBP new issues:

  • BFCM priced a £500m, 5%, Jan 2026 bond at gilts +170bps. Via BNPP and GS.


CHF new issues:

  • Bank of Montreal has mandated UBS to lead a CHF benchmark bond issue following investor meetings.


  • Lloyds Bank is close to pricing a CHF 200m, 4yNC3 at SARON +135bps via CS and UBS.


  • Austrian bank BAWAG  PSK is close to pricing a CHF 135m, 3y bond at around SARON +16bps via UBS.


  • Credit Agricole Bank has today priced a CHF 150m, 7y bond at SARON swaps +37bps via CA-CIB.


  • Federation des Caisses Desjardins du Quebec yesterday priced a CHF 325m, 5y bond at SARON ++20bps via CoBA and UBS.