Basis: Signs of cable gamma hedging again

Gammon vol
Strong UK data saw gilt yields test their 2023 highs, a move that also triggered 30y flows in cable basis, with traders citing XVA gamma hedgers.

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  • Signs of cable gamma hedging again

  • Flow

  • New issues:


Signs of cable gamma hedging again

Strong UK data saw gilt yields test their 2023 highs (last tested in the long end at least at the very start of this year) while in cable basis, underperformance of long gilts (+8bps in yield terms) versus Bunds (+3bps) and USTs (+5bps) saw some 20y and, especially, 30y flows (at -25bps) in cable basis that were swiftly attributed to XVA hedging.


The 30y sector was sharply affected by ‘The Madness’ of the Truss-Kwarteng mini-regime in the Autumn, moving from from -38bps to -14bps in two nutty October weeks, as gilt yields exploded in response to Kwarteng’s expansive spending plans.


What has happened in gilts today is very different, a fairly sharp move in response to good news regarding increased government tax revenue and other positive economic news that might just mean that the rate hike cycle has a little further to go.


But, one long-standing basis swapper said this lunchtime in London that “there’s been a bit of an underperformance in gilts today and that’s triggered some interest in rebalancing flows.” In fact he noted that 30y cable has now popped 2bps higher since yesterday morning and having traded today a couple of times at -25bps, he said it is currently quoted at that level, which is +0.375bps on the day.


Elsewhere, said the basis swapper, the US holiday yesterday has meant a quiet start to the week so far. Although he said that “we have seen more UK names in EUR again, which has been a bit of a slow-burning theme this year, and there was 5y GBP/EUR flow yesterday on the Tesco deal, and we might see NatWest do something today (when it prices an 8y €500m bond).”


While cable has gently bull-steepened for this session so far, the EUR/USD is a solid +0.25bps across most curve points so far, with the above swapper saying “it hasn’t really got going yet in terms of swaps actually going through the market, but expect it to be pretty busy from now until the end of Thursday, after the half-term lull last week.”   




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



New issues


USD new issues:

  • Mizuho plans a three tranche USD benchmark bond consisting of 6.25yNC5.25 at USTs +165bps, a 8.25yNC7.25 at USTs +180bps and a 11.25yNC10.25 bond at +195bps via BofA and Mizuho.


  • Mitsubishi Finance plans a 10y USD benchmark, bond at USTs +185bps via BofA, Citi, JPM and MS (B&D).  


  • Egypt plans a 144A 3y USD-denominated Sukuk bond at around 1.625% via the Abu Dhabi Islamic Bank, Citi, Credit Agricole, Emirates NBD, First Abu Dhabi Bank and HSBC.


EUR new issues:

  • NatWest is pricing EUR 11y NC6 Tier 2 around swaps +280bps through DB, NatWest (B&D), RBC and Santander. Bools €1.7bn, expected size €600m,


  • ORIX Corp, a Japanese financial services company, is pricing EUR 5.25y around swaps +150bps through GS (B&D), JPM, BNPP, CA and BofA.

  • VF Corp, a US clothing company, plans EUR 3y and 6y Green bonds through JPM and MS.


  • Tesco Corporate Treasury Services yesterday priced a €500m, Feb 2031 4.25% bond at 99.502 via BNPP, Rabo, Santander and Standard Chartered.


GBP new issues:

  • Deutsche Bank yesterday priced a £750m short 8y NC7 6.125% SNP (Baa1/BBB-/BBB+) at gilts +270bps. Self-led and books above £1.3bn.


SEK/NOK/DKK new issues:

  • Danske Bank is today pricing a SEK 2.5bn, Green Senior Preferred bond via Danske and Nordea. It will consist of SEK 1.2bn 3yNC2 FRNs at STIBOR +85bps, SEK 3yNC3 fixed-rate bonds at swaps +85bps and SEK 500m of 5yNC4 bonds at swaps +115bps.


AUD new issues:

  • Export Development Canada raised AUD1bn via selling 4.5% September 6, 2028 Kangaroo bonds at 34bps over ASWs.