Basis: SARON strives to Lord it over the West

Sauron painting 18a Apr 2023
Canadian and CHF themes interwove in the market today as SARON made a doomed attempt to seize top spot in the basis market. BNPP eyes JPY/USD.

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  • SARON strives to Lord it over the West

  • BNPP: Why has JPY/USD retracement stalled?

  • Flow

  • New issues


SARON strives to Lord it over the West

A number of untypical themes were interwoven into the narrative of the cross-currency basis market today. Among them, a strong Canadian presence among issuers across the active currencies. Also the relatively high quality nature of the issuers who have turned up so far. Plus there was an audacious attempt by the forces of SARON to establish CHF as the main issuance currency today, an attempt crushed by the West and its primary weapon, the USD.


For basis swappers with good links to Canadian borrowers, the CHF market, or both, it was a particularly busy day today. One such swapper admitted as much this lunchtime in London, adding that “it looks like there might be one buyer looking for CHF from a particular safe (Canadian) kind of source, though I’m not privvy to that.”


Quebec and Bank Nova Scotia issued a total of CHF 975m (around $1bn) of bonds between them today, in 3y, 7y and 10y tranches.


Also heading back to CAD at some point will be the super-wealthy Ontario Teachers’ Pension Trust (net assets around $180bn) which via its Ontario Teachers Finance arm is close to pricing a USD 5y and always swaps back to CAD. Even the Canadian government has joined the party, with its own USD 5y. 


So far the CAD/USD basis flows aren’t definitively happening though 5y has traded at an unchanged -2bps today, while CHF/USD has been better offered, with 3y trading .5bps lower on the day at -46.5bps, according to the above swapper, while 5y is -2bps at -53.5bps.


But with the EIB (which ‘keeps its money in a giant fridge’ before swapping, according to a trader), issuing more than three times as much in dollar terms in just one deal than today’s four CHF deals combined have managed today, any attempt by SARON to rule them all via CHF domination, has failed.


And as for EUR versus USD, as predicted before Easter (see Total Derivatives), while EUR issuance may be slower to awaken, its pipeline seems to be building, and there remains relatively little between them in terms of basis swap advantages, according to traders today. Indeed, it was a Canadian name that stood out again, with NBC launching a €1bn 5y Covered bond.


BNPP: Why has JPY/USD retracement stalled?

Strategists at BNP Paribas have taken a concise look at why the retracement of JPY/USD from its sharp widening during the March madness has stalled at roughly its halfway point. For example, the 5y JPY/USD basis swap widened from -68bps to -82bps amid the flurry of bank liquidity worries that flared up, ultimately engulfing Credit Suisse among others, but has retraced to trade at, or just below, -75bps for the last three weeks. BNPP said that:


  • "Having retraced from their sharp widening in March due to stress in the financial sector, xccy basis spreads’ retracement has stalled recently.


  • "The 5y xccy widening in March reflected expectations of a Fed rate cut, although there was an element of financial stress, in our view. We think 5y xccy may wait to re-tighten until the market further prices out a Fed rate cut.


  • "For 3m, strong demand for JGB T-bills from domestic investors is likely crowding out the USD supply channel from overseas investors. We argue that the BoJ needs to reduce rinban significantly so domestic investors can switch their holdings from T-bills to JGBs. The BoJ is aware that it is their critical task to reduce rinban.


  • "Conversely, we have less conviction in how the market may change its FF rate expectation."


In conclusion BNPP recommends paying 6m6m vs. 5y. Target entry -6bp. Profit target -13bp (including roll up). Stop out 0bp.


In contrast, JP Morgan's analysts recommend that investors keep receiving 1y versus paying 5Y USD/JPY basis.



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


New issues


USD new issues:

  • The EIB wins today’s Biggest Deal Award having launched a $4bn, 7y, SOFR +39bps bond via Barclays, JPM (B&D) and MS. To price imminently.


  • Ontario Teachers’ Finance is close to pricing a $1.5bn 5y SOFR +78bps or so bond via BofA, Citi, National Bank of Canada and RBC.


  • Canada is preparing a USD 5y Global at around Treasuries +14bps. Leads are Barclays, BofA, CIBC, RBC and TorDom. 


  • Japan Bank for International Cooperation is close to pricing a 3y USD benchmark bond at SOFR +47bps via Barclays, BofA, Citi and Nomura (B&D).


  • Asian Development Bank plans a 5y $3.5bn Global at SOFR +36bps via BofA, BMO, BNPP: and HSBC.


EUR new issues:

  • Transurban Finance, an Australian toll-road operator, is pricing EUR 10y Senior Secured around swaps +150bps through BNPP, BofA (B&D) and SocGen.

  • National Bank of Canada is pricing a €1bn 5y Covered around swaps +40bps through BNPP, HSBC, LBBW and RBC.

  • TSB Permanent is pricing EUR 5y NC4 around swaps +385bps through BofA, GS, MS (B&D) and UBS.


CHF new issues:

  • Quebec has priced a CHF 390m, 10y, 2.04% bond at SARON +6bps via BNPP and Deutsche.


  • Bank of Nova Scotia has priced a two-tranche CHF bond consisting of a CHF 360m, 3y fixed at SARON +14bps and a CHF 225m short 7y at SARON +20bps. Via UBS (B&D) and Scotia.


  • Commerzbank has priced a CHF 125m, 5y Senior Non-Preferred bond at SARON +190bps. Self-led.


  • DZ Bank has priced a CHF 100m, 6y, 2.8325% bond at par via UBS.


SEK/NOK/DKK new issues:

  • Stockholm has priced a NOK 1bn, 5y FRN at NIBOR +23bps via SEB.


AUD new issues:

  • Canadian Imperial Bank of Commerce Sydney branch last night sold AUD1.5bn of Apr 21, 2026 covered FRNs that pay AUD 3M BBSW + 80bps.