Basis: Ticking over despite Powell; SSAs

Choppy sea
Any expectations that new issuance might be on hold today ahead of Powell were largely dashed, leading to choppy basis trading. Citi eyes SSAs.

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  • Ticking over despite Powell

  • Citi: 5y to 10y USD SSA supply to wane

  • Flow

  • New issues


    Ticking over despite Powell

    Expectations that the new issuance market might be on hold ahead of a potential market-moving event in the form of testimony to the Senate from Fed Chair Powell today only partially played out during what was a choppy, two-way session for basis.


    Since the wild volatility of last Autumn it has become ever more common for core markets and new issuance to thin right out ahead of any announcement or data that might spark big moves.


    This was clearly visible in the week of Fed, BOE and ECB announcements last month that cut new issuance down to a trickle. But markets decided (seemingly correctly) that Powell’s testimony did not quite carry the same level of risk, so while SSA issuance was notably quieter than it has been (perhaps for other reasons, see Citi below), other cross-border bond activity has been quite lively.


    “It’s been quite busy,” said one basis swapper shortly before Powell’s slightly hawkish testimony hit the screens. “But it’s choppy, issuance is two-way (with EUR and USD both active) so the moves in EUR/USD basis have been mixed with no strong direction.”


    Late in the London session though, this is not reflected in terms of mixed moves in key issuance points with 3y EUR/USD -0.5bps at -20.875bps, 5y is -0.75bps at -21.75bps and 10y is -0.625bps at -12.625bps.


    The above trader said that the basis moved in different directions earlier but that the slight widening trend that has evolved as the session wore on might reflect that “EUR/USD are at long-term high levels and have struggled to push higher in the last month or so really. People see these as good levels to receive EUR/USD.”


    Elsewhere, GBP’s lively 2023 in terms of issuance continued with more than a £1bn of supply from Mizuho and Intesa Sanpaolo in and around the 5y point, with decent 45y cable flow reported around -15.5bps.  


    In EUR/USD the 5y sector also stood out with a number of trades at -2.375bps in a session where the belly held sway over the wings. NIB in USD, and NatWest and Nationwide in EUR, all tapped that area of the curve. 


    Citi: 5y to 10y USD SSA supply to wane

    Strategists at Citigroup today took a look at USD SSA supply prospects following a strong opening couple of months of 2023, and predict a slowdown from here in part due to less supportive basis swap levels in key sectors.


    It recalls that “the $47bn and $34bn of gross issuance in the first two months of the year, $SSA supply had been heavier than our estimates in both months. YTD, $SSA gross issuance has reached $85bn, close to one third of $268bn – the amount we projected for the entire year of 2023.”


    This also, noted Citi, is $29bn higher than the gross issuance at the same time last year, and $9bn higher than the historical average level at this point of the year


     But looking ahead it said  "Anticipating March FOMC on the 16th, we expect new issuance in the $SSA market to slow down in the coming week, before catching up again after the meeting. We expect a total of $21bn of gross issuance this month, lighter than the last month, or January."


    And looking at the issuance curve so far this year, Citi notes that “the average maturity of $SSA benchmark issuances has always been around 4~5 years (and) the average maturity of new benchmark supply this year stands at 5.0 years, but the percentage of issuance under 3 years appear to decline. This could be a result of increasing issuance from supranational banks and lack of issuance from non-US agencies (for whom) benchmark issuance concentrates in the 5-year and longer tenors.”


    “On the other side, for EU/Nordic/Canadian/Japanese agencies, 3-year area appears to be the most popular tenor for new benchmark issuances.”


    “Going forward,” concludes Citi, “as we expect issuance from supranational banks to slow down, we think it will cause some lack of supply in 5-year and longer tenors. Meanwhile, several Nordic and EU agencies that haven’t tapped in the dollar market so far this year could still issue in Q1. The historical pattern suggests the 3-year area is the most popular tenor for these issuers. We think the 3s5s spread curve should flatten as a result of this supply dynamics.”



    Basis trades on the SDR can be seen here: Total Derivatives SDR. Note that the SDR now shows platform/broker for each trade, where available.


    New issues


    USD new issues:

    • Federation des Caisses Desjardins du Quebec plans a USD 5y benchmark bond at around USTs +160bps via Barclays, Citi, Goldman, JPM and TorDom.


    • Nestle Holdings plans a four-part USD benchmark bond issue consisting of a 3y at USTs +70bps or so, 5y at +85bps, 7y at +95bps and 10y at +105bps via BNPP, BofA, Citi, HSBC and JPM.


    • NIB plans a $1.5bn 5y Global at around SOFR +30bps. Leads BoA, BMO, Nomura and RBC. Aaa/AAA.


    • Commonwealth Bank of Australia yesterday priced a $1.5bn 2-part ($1bn 3y fixed and $500m 3y FRN). Leads BofA, CBA, Citi, Goldman and JPM. Aa3/AA-/A+. +70bps and SOFR +75bps.


    • Lloyds Bank yesterday priced a $1.25bn perp NC7 AT1 sub. Leads BofA, Lloyds, MS (B&D), RBC and TorDom.  Baa3/BB-/BBB-. 8%.


    EUR new issues:

    • Magna Intl Inc, a US auto parts company, is pricing €500m 9y around swaps +140bps through BNPP (B&D), BofA and Citi.

    • Norway’s DNB Bank is pricing EUR 6y NC5 Green around swaps +90bps through CA, DB, DNB, GS and JPM.

    • NatWest today priced a €500m 5y NC4 Social at swaps +120bps through ING, Natixis, NatWest (B&D) and UniCredit.


    • Nationwide plans a EUR 5y Covered bond through BNPP, HSBC, LBBW, NordLB and UBS. 

    • Auckland-based ASB Bank plans EUR 4y through CBA, SocGen and UBS.


    • NBN Co yesterday raised EUR1.35bn via selling the following bonds; EUR750m, 4.125%, March 15, 2029 at mid-swaps + 85bps with make whole call at 25bps until January 2029 and single call at par in December 2028 and EUR600m, 4.375% March 15, 2033 with make whole call at 25 until December 32 and single call at par in December 2032. Priced at 115bps over mid-swaps. Leads are BNPP (B&D), Citi, DB and HSBC.


    GBP new issues:

    • Mizuho has priced a £500m, 5.25y, 5.628% bond at gilts +183bps via Barclays, HSBC, Lloyds and NatWest.


    • Intesa Sanpaolo is close to pricing a £600m 6y NC5 Green SNP at gilts +285bps via IMI, JPM, MS and NatWest. Books are above £1.2bn.


    AUD new issues:

    • Nationwide Building Society is in talks with potential investors ahead of a possible debut AUD 5-year bond issue. RBC, TorDom and UBS are helping to lay the groundwork for the deal.