Basis: First Republic triggers widening ripple

Safety first sign 17 Jan 2023
Calmer-than-expected post-Easter cross currency swap markets have been dragged lower by an echo of the bank panic of last month.

Start a free trial to read this article

Join today to access all  Total Derivatives content and breaking news. Already a subscriber? Please Log In to continue reading.

Or contact our Sales Team to discuss subscription options.

Get in Touch
Blurred image of Total Derivatives article content


  • First Republic prompts widening ripple

  • Flow

  • New issues


First Republic prompts widening ripple

It’s been a fairly quiet post-Easter period thus far for cross-market new issuance with some lumpy deals last week from the likes of Canada and the EIB (both sold $4bn of bonds in 5y and 7y maturities respectively) proving the exception rather than the rule, although there has been a good smattering of €1bn and $1bn-plus deals out there.


The basis swap market is ticking over, say traders, but not doing much more than that, despite the best efforts of Canadian borrowers who, in traditional fashion, have moved as a pack to tap international markets -- in this case the dollar market.


One long-suffering London-based swapper acknowledged the appeal of USD for Canadian names including CIBC and RBC who between them, and in four tranches, yesterday sold $4.75bn of bonds. But while that might have kept dealers in New York and Toronto busy, on this side of the Atlantic, said the above swapper, associated basis flows were not visible.


Similarly a decent Proctor & Gamble deal in EUR yesterday failed to inject any noticeable flow into EUR/USD, while news that Italy’s CDP plans a USD benchmark failed to tighten EUR/USD.  


Instead, he continued, a faint echo of last month’s banking sector panic has been the significant force in major bases this week. “There’s been some widening in EUR/USD the last few days. It began on Friday and it’s not issuance driven, it’s because of concerns about deposit flight from some smaller bank institutions.”


“The trigger,” he explained, “was worries about First Republic results (which subsequently came out on Monday and showed a sharper-than-expected drop in deposits) and a 5% drop in UBS share prices showed that the banking sector concerns haven’t fully gone away.”      


The UBS share price dropped as much as 5.4% after it released its Q1 results this morning, but has since recovered to -0.9%. First Republic is down by 25% pre-market..As for the move in basis, since Friday morning 3m EUR/USD has dropped from -15 to -18.75bps, while 10y has headed two bps lower to -28.125bps. All points of the EUR/USD curved are at their lows since Thursday’s close but the speed of dip seems to have slowed as the recovery in UBS shares seems to be keeping a lid on any desire to panic.


Meanwhile x-date uncertainty is another factor for the dollar funding markets to price in, while the major central banks have today decided to reduce the frequency of their dollar liquidity providing operations from May 1 (link). 


In terms of flows, the above basis swapper said that today has been “really very quiet,” highlighting only good offers in 5y EUR/USD which has traded at -27.5 and -27.75bps and some 5y cable flow at -16.625bps.


But GBP issuance, which has been quite lively in a stop-start kind of way all year is definitely in stop mode at the moment, leaving most of the cable basis action to XVA-type long end hedging flows whenever gilts have a patch of volatility, which this week they haven’t. The 30y cable basis has headed steadily down towards six month lows of -36bps over the last five sessions, dropping 4bps in that time to -33bps earlier today, but is now showing signs of bottoming-out and is at -32.625bps.  



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



New issues


USD new issues:

  • Italian government agency CDP (BBB/BBB) plans a USD 3y to 5y bond. Via BNPP, BofA, Citi, GS, HSBC, IMI-Intesa Sanpaolo, JPM, MS and SocGen.


  • Swedish Export Credit plans a long 2y USD Global at around swaps +32bps via BofA, Deutsche, Nomura and TorDom.


  • CIBC yesterday priced a $2.25bn 2-part ($1.25bn 2y and $1bn 5y). Leads are BofA, CIBC, JPM, MS and UBS. A2/A-/AA-.  +103bps and +142bps. It dropped plans for a 2y FRN.


  • Royal Bank of Canada yesterday priced a $2.5bn 2-part ($1.6bn 2y and $900m 10y). Leads are RBC, GS, Lloyds, TSI, Citi and ANZ. +85bps and +152bps.


EUR new issues:

  • Danish Telco TDC Net is planning a benchmark 8y EUR-denominated Sustainability-Linked Bond issue for pricing tomorrow via BNPP, HSBC, ING and SEB.


  • SCBC is pricing a €1bn 5y Swedish Covered bond at swaps +18bps through BNPP, Citi, Danske, Deka and HSBC.


  • Proctor & Gamble yesterday priced a €1.34bn, two-tranche bond including €650m of 3.25y bonds at swaps -10bps and €650m of 8.25y bonds at swaps +15bps. Via Barclays, Deutsche and HSBC.