Basis: ECB watched; Widening front-ends

ECB Lagarde 9 Jun 2022
Cross border issuance in most of the major currencies remains on ice while curve-steepening into the ECB has been a feature for EUR/USD.

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  • ECB watched; Widening front-ends

  • Flow

  • New issues


Eyes down for ECB; Widening front-ends

Cross-border issuance in the major currencies has failed to recover from the three-day weekend in Europe as markets stayed quiet ahead of the Fed and ECB, offering traders in London a nice quiet bridge that leads to another three-day weekend in the UK to mark King Charles’s Coronation.


But before that a dovish Fed yesterday was followed by an ECB rates decision that saw it hike 25bps as expected, switching the focus now onto the subsequent words to be spoken by Lagarde this afternoon.


One basis trader at an active London-based market participant said that so far today “it’s been very quiet, all the focus is on the ECB.” As is often the case when issuance has a break it is the front-end that emerges with the flows.


A surprisingly sharp drop in the EUR/USD first break either side of the Fed hike yesterday has seen the 3m drop another 1.875bps today to -25.25bps, but the above basis swapper said that it has been a catch-up move in the 2y that has caught the eye with a drop of 0.625bps to a near two-month low of -30.625bps.


“The front-end has been the busiest – particularly the 2y (EUR/USD),” said the basis swapper. “This has led to curve-steepening and copycat moves in the front-end of cable but with less flow.”


The move might be related to the widening gap between USD and EUR (and GBP) central bank rates but with that widening of the gap by 25bps lasting (as expected) only a day following today’s 25bps ECB hike, it may be more of a curve play but basis swappers were not clear on the drivers of the moves. 


Today the 2y EUR/USD basis is -0.625bps as 2y30y steepens 0.5bps to +17.5bps, while 2y cable is very modest 0.25bps less inverted at a still extremely negative -21bps.


Swappers will be eyeing whether the ECB hike announced a short while ago reverses the basis steepening move. Apart perhaps from London-based traders, who will be eyeing another long weekend and checking they have sufficient supplies of gin and quiche to get them through Saturday.



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


New issues


USD new issues:

  • Copeland (Emerson Climate), a German manufacturer, plans a $2.25bn long 7y NC3 bond issue as well as a EUR ($500m equivalent) long 7y NC3 at around the 6.5% level. Pricing expected today. Leads include Barclays (B&D), RBC, WFS, GS, BNPP, JPM and Mizuho.


EUR new issues:

  • Melbourne Airport plans a 10y EUR-denominated bond issue via BNPP, Citi and Goldman following investor calls on May 9.


CNY new issues:

  • JP Morgan Chase Financial today priced a CNY 100m, 3%, 2y bond at par. Self led.